Call loans in Canada represent advances made to brokers and other customers, principally the former, on the security of first-class stocks and bonds, with an average margin of some twenty points below the market value of the stock and, if loaned conservatively and watched carefully, form a safe and remunerative asset.
Call loans in Canada are not call loans in the strict acceptance of the word. The securities given as collateral have, as a rule, only a limited market principally confined to Canada. Comparatively few of them are listed on the stock exchanges of New York and London, and they consequently cannot be looked upon as a means of increasing the cash reserve of the country in case of emergency. An individual bank, in ordinary times, can, of course, reduce its call loans in Canada at any time for its own purpose, the brokers simply borrowing from another bank to meet the call, but in a general emergency a prompt response to a call by a considerable number of banks could not be relied upon.
Under these circumstances the rate of interest charged on these loans is considerably higher than that obtaining on strictly call loans in New York and London, and is only slightly lower than the rate charged on commercial loans, seldom falling below five per cent. In times of financial stringency the rate on call loans is generally higher than the commercial rate, which remains practically unchanged.
The Canadian custom of requiring a man to confine his borrowing to one bank - the one-bank policy as it is called - does not apply to brokers who from the nature of their business borrow where they can, the loans depending entirely on the securities pledged, rather than on the financial standing of the borrower. A broker is therefore a customer of one bank but a borrower from many. These latter naturally look after their own commercial customers first, and the broker, not being a regular customer, is of only secondary consideration, and he is loaned any surplus money of the bank after the requirements of the commercial and other customers have been met.
Banks are frequently accused of encouraging speculation on the stock market at the expense of their commercial customers, but this is certainly far from the case, as will be vouchsafed for by any broker.