The interest rate on call loans flue. tuates considerably from time to time. The rate is made on the Stock Exchange and is determined by the demand and supply of loanable funds in the money market. The prevailing rate on a call loan applies each day until the loan is paid or called. If, during the course of a loan, money rates advance, the borrower's rate is "marked up"; if, on the other hand, there is a decline in the money rate, the broker gets the benefit of it.
The bulk of call loans in Wall Street are made through "money brokers" who act as middlemen between lenders and borrowers. There is a regular place in the Stock Exchange for effecting loans, and certain members make this their exclusive business, offering money just like a stock. If a bank finds after the morning exchange at the Clearing House that it has a good balance of cash, it will call one of the money brokers and tell him to lend $500,000 or whatever amount it can loan that day.
1 Pratt: Work of Wall Street, p. 287.
When money is plentiful, call rates range from 1 to 3 per cent, and the money market is said to be "easy"; at 6 to 8 per cent the market is "firm"; and when it goes above that it is "stringent." In times of panic the rate has gone above 100 per cent. In many of the states lenders cannot charge more than the legal rate of interest, usually 6 per cent. Under the law of New York State, however, the banker can charge for call loans above $5,000 any rate the borrower is willing to pay.
As noted elsewhere, the new Federal reserve system is likely to reduce the volume of money available for stock exchange operations and so to increase the interest rate. It is probable, however, that money rates will be subject to less violent and frequent fluctuations.