Though the market for stocks and bonds is the highly organized stock exchange, the term of such securities is usually very long and they do not rest upon commercial transactions which liquidate them. Call loans with stock exchange collateral have been regarded by American banks as particularly liquid assets.1 From the point of view of an individual bank, call loans in ordinary times answer well the requirements of a secondary reserve. Failure of the borrower to heed the call subjects the collateral to immediate sale. Collateral time loans are less liquid. The disadvantages of both call and time loans are: first, that the fear of alienating a customer often deters the call of the loan, or the refusal to renew the loan and sell the collateral; and, second, that in times of crisis the market for securities contracts severely and the collateral has to be sacrificed at such prices as promote the violence of panic. European banks rely less upon securities and more upon commercial paper for secondary reserve.

1 "A Banker whose institution has loaned in the aggregate several billion dollars on Stock Exchange collateral during his incumbency says that he has never had occasion to question the liquidity of the 'secondary reserve.' The bank has taken but one loss on a call loan, for $5.000. and that resulted from reluctance to sell the collateral while the brokers were hopeful of being able to ride the storm in which they had become involved." (Annalist, March 4. 1918.)

The market for commercial paper is the discount market, including the central bank, and such paper has short usance and is self-liquidating. The paper may be additionally liquid if there is no expressed or implied agreement to renew the loan at maturity, and if the borrower, in order to maintain the good-will of his name, stands ready to borrow elsewhere and take up his paper - even in advance of its maturity, if the holder so desires. This holds true only of commercial paper bought in the open market. Commercial loans to customers are much less contractile, for such customers may expect a continuance of their loans and even special accommodation in times of crisis. Therefore, assuming that the discount market is as broad and convenient as the securities market, and that the rate of interest (discount) is as high, it appears that commercial paper answers the requirements of a secondary reserve better than do stocks and bonds or loans based upon them.