New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1918-09-02
Call Loans on
Stock Collateral
Not Endangered
Advances on Acccptances Not
Likely to Absorb All Sur
plus Funds
BY Theodore Prince

ing that they will make ad-
" vances on call against &C.
ceptances eligible for rediscount at
the Federal Reserve Bank have as
sutned leadership in most important
section Of the money market. There is,
however, considerable uncertainty as to
the effect of this action on the Stock
Exchange call money market.
No lengthy discussion is required to
understand that it is not desirable that
large amounts should be loaned on
Stock Exchange collateral; government
financing and essential industries must
be favored even if it is necessary to
discourage speculation.
approximately three methods of deal
ing with the Federal Reserve Bank. If
they are not, members of the system
they can sell their paper to the Fed
eral Reserve banks which are author
lied under certain regulations to pur-
chase them. Again, members can re-
discount paper at the Federal Reserve
Bank upon posted rates, as the indorse
ment of the members of the Federal
Reserve system are for such purposes
Of equal weight. Thirdly, advances can
be made on acceptances, only available
to the members of the Federal Reserve
system, also upon posted rates and for
fifteen days or less secured by eligible
paper and other securities.
Clearly the market for call money on
acceptances has not been made for the
accommodation of banks. Their re-
sources exist mainly for acceptance OPP
erations, either by creditsrin the first
instance to the maker on his notes or
by purchase of commercial paper gen.
orally; such banks can then always
secure financial elbow room by direct
sale to Federal Reserve bank or by
suitable arrangements through other
banks, members of the Federal Reserve
system.
For member banks the privilege Of
rediscount on all paper maturing with
in ninety days and of securing ad-
vances for fifteen days or less from
the Federal Reserve Bank, gives fair
mobility in handling acceptances.
Discount houses, dealers and pur-
chasers have heretofore bought accep-
tances (ninety days) at certain rate
and borrowed money at higher rate
until the obligation was paid off. If
such purchases were limited to their
actual capital, of course, borrowing
need not be resorted to; otherwise in
the absence of an open market for Dor
rowing on these acceptances such hold
ers were compelled to sell before the
maturity of their paper-profit or no
profit.
Wider Field Is Sought
To widen this field and give this
class of operators in acceptance a more
active and potential opportunity, these
call loans on acceptances have been Gre
ated. A preferential rate at Az per
cent when call money on securities is
per cent enables the dealer to finance
A'iAA'oSAA oO CA"S uC Gail Uuy ACCcpLdu
and hold them for time until due or
until he sells them with resulting
profit. Nevertheless, such call loans on
acceptances must still be limited by the
available funds of the banks and bank
ers as a class, who now use the call
money market in Wall Street for loan
ing out surplus funds. The question
can now be fairly raised, How much
competition, if any, will there be b.
tween these two classes of call loans !
Since the call money market repre-
sents surplus funds from some 20 600
banks in the country, it is important to
consider how much of this fund would
be diverted to the call market on &C.
ceptances.
| Call loans on securities will be at.
fected to the extent that the call loans
on acceptances are more attractive in
rate of interest, dcsirability or secu.
rity. So far as the character of the Sc.
curity is concerned, the call loan for &C.
ceptanccs cannot in any way be consid.
cred superior protection or security to