Evening star., 1903-07-04
100000


Bank ....................,.. 5000
Total OBSERVATION-DISCLOSURES. .$lOO.oOO
1t does not follow that every transaction
exactly follows these proportions but this
gives a fairly accurate idea of the close re-
lations of the two markets. The banks
supply the bulk OF the credit required to
carry on the vast transactions OF the stock
exchange
1t will be noted right here that while the
volume of credit vastly exceeds the amount
of money 1t corresponds closely to the
actual products of the country. Every dol
lor of credit stands for one dollar OF wealth
in wheat or iron or some other commodity.
or in securities. When there Is any infa-
ton it is usually in the prices of the COM
modify and not primarily In the output of
credit
Interest Rates and Stocks.
It follows that when from any cause there
is shortage of credit the stock market
suffers. The prices of securities. therefore
are not always governed by their actual
values as measured by the earnings OF the
companies that issue them. but at times
by the rates of interest-the price of credit.
Hence 1t follows that as a general rule
stocks decline when interest rates advance
While this does not always follow, 1t is
manifestly difficult to carry on an active
campaign in stocks at time when there
is a Stringency in money. Last fall an at
tempt to do this very thing resulted In
loss to the spectators who tried it.
1t may be thought that bank takes
great risk when it makes loans on Securt-
ties that are traded in in a mercurial stock
market. But it should be remembered that
it protects itself by large margin, usually
20 per cent, and 1T Is rare that any stock
declines as much as that in one day. Then
the conservative banker loans only on such
securities as have a constantly ready mar
ket. Moreover, he usually demands di-
versity of securities in the collateral for
loan. He will not have all his eggs put
in one basket. He demands for instance,
that a certain large proportion of the col
lateral shall be stocks and bonds of stan
dard character for which there is always
market.
"Call" Loans.
Then the bulk of the bank loans are on
call--that is to say, the loans are subject to
repayment on demand by the bank at any
time. Practically, call loans are one-day
loans-that is to say, II the money is bor
rowed today 1t is not subject to call until
tomorrow, and if not called before 1 pm.
the loan goes over until another day. By
keeping the bulk of it's loans on call the
bank is in position to call in it's outstand-
ing credit in a few hours The rate for call
loans is established In the stock exchange,
where there is a regular place where such
loans are made. The banks authorize H. P.
rockingham or some other leading money
broker, to loan SO many hundreds of thou
sands, and sometimes millions of dollars in
the exchange. The brokers bid for the
money the same they would for stock.
1t is regular auction. The highest bidder
gets the money. If there is an active de-
mand the rate advances, and when all are
satisfied the rate falls. Many loans are
also made by direct application at the bank,
but the market rate is established in the
exchange
The banks also make time loans and most
hrnly an1r HI
credit on the time basis, so as not to be
under the peril of having all their loans
called at one time. Time loans are made
Tor so many days, as, for instance. for thir-
ty, sixty or ninety days, and the rates for
such accommodations are except under ex-
traordinary conditions, higher than the call
rate.
Now it must not be supposed that all that
ele money market does is to supply the
credit facilities for stock speculation. II
does that, but much more The outstand
Ing loans of the clearing house banks. as
TINS is written, amount to $915. 900, 600 Per
naps one-thlro or this represents purely
speculative stock transactions, and the re-
malnder the requirements of corpora tions
ana merchants. But millions of dollars are
lodned by trust companies, private bankers
anu iilolViduais that do not appear in this
totai; besides, there is at times heavy lend
ing In Wall street by European Capitalists
Ihen, in the past three or four years. there
mas been significant development in the
e u uii Get foans IN wall street by
western banks and trust companies Only
the other day big Chicago trust comnany
loaned two or three million dollars in the
STOCK exchange. The west has grown SO
rich that it is no longer a mere debtor to
the east but has become a factor in the
wall street money market while MANY of
It's rich men have become leaders In its
STOCK market. Thus. in this way. as in
many others. Wall street and the country
nave peen brought closer together in every
vital interest that works for the greatness
or the one and the prosperity of the other.