New-York tribune., 1920-02-09

"I'A"r. "a panh may pc a neavy lender
one day and then call loans the next.
mining the condition of tho bank. with
the report from the Clearing House in.
the. bank wants to lend $4,000 900 on
call. 1t telephones the office Of the
brokerage house which acts for it and
gives it instructions. The clerk or
partner In the brokerage Offices COM
munlcates by telephone with the floor
member. me-; instructing him roughly in
this manner: Lend $2,0OO,OOO for th.
No. Name Trust Company in 500 ooo
units ut IS per cent" The broker then
looks over his list of would.be hor.
rcwcrs and divides the money amonu
them.
Every Loan Checked
- me clerk at the money table gives
check on every loan, and besides the
member banks of tho Federal Reserys
pank report to it each day on the ex
tent OF the borrowings for Stock Ex-
change purposes. Thus the authorities
are able at any time to find out the ex-
acI SITUATION in respect to lvans.
oHlli tne system was installed. and
at which money would be lent at cali
was determined in an open market. inst
as as 1ne price of stocks is now fixed bv
bids and offer,. When money was IN IN
abundant supply borrowing brokers s
would frequently put in a bid slightly
under the market, and thus the ratio
Woulo De brought down. Conversely.
uhuer this system, when money was
nouteiy scarce would-be borrowers
up spectacularly without he,n;no % 80 80
situation. Bidding up rates s does not unt
increase the supply of money IN Aos ~
gwen day, because that is fixed by the
general condition of the banks A.
present present IN fixing thu rate, the banks
IKE storekeepers, base the price NJ
tneir product on their interpre ia tion
"a .ne working Of supply and demand.
after the loan is made the money
Dloher steps out, and all future deal
ilngs, are made directly between the
lending bank and the borrowing inc
broker. The bank notifies the brokess olas
when , it wants to call the loan, and the
latter, after making the loan. sends
collateral directly to the lender.
Under the new Stock Clearing Cor
poratlon, which the Stock Exchange has
organized to reduce by one-third The
tou1ine OF trading, loans will be cleared
IN the basement of the Stock Exchange
ana when loan has been called the
broker will turn his collateral off 'i.e 10
clerks of the clearing corporation
until he makes new loan All the
banks Will have representation in the
new quarters, and after a new loan
mas oeen made at the money table un
stairs the collateral down in the base
ment VIII be turned over to the new
lender. At present, between the call
ing OF the old loan and the making of
the new, the broker must make an in
1etmeolary one day with his own bank
ana ms runners must carry the col
lateral through the street from one in.
stltutlon to another.
Already Organizing
About two-thirds of the clerical force
neeoed 10 carry on the functions of
' ,he new Stock Clearing Corporation
have already been hired, and verv soon
a campaign of education for the ben
NJ OF the partners and clerks and bows
! or Stock Exchange houses will be
lnaugurated. Before the CLEARING of
loans IS begun the new machinery will
clear security balances, which simplv
means that the Clearing House principle
viii be carried further. At the old
Stock Clearing House, which will soon
DC known as the night branch of the
StoCk Clearing Corporation, if
broker has sold 1000 of Steel for one
customer and bought 1000 for another
the two transactions will in effect off
set themselves and no actual delivery
o1 stock as between brokers will be
necessary. However, 1000 shares of
Bethlehem B will not Offset to any de.
gree at present 1000 shares of Steel
common, and the purpose of the new
clearing of security balance is to ac
complish just this.
From the point of view of the call
money market, the significance of those
somewhat revolutionary changes in
Stock Exchange practises is that the
new technique will tend to bring the
campaign for the substitution of the
term settlement for the daily settle
ment within the realm of the practical.
II the term settlement (weekly, fort
nightly or monthly, such as the ex
changes abroad have, were adopted
time loans would be made for the
period of the settlement and call loans
tor Stock Exchange purposes would be
eliminated Probably the same volume
OF money would be needed, but it would
be meted out by a different system
Paul M. Warburg and the American
Acceptance Council believe that the
financial system of the country would
be better if the present call money
market were abolished, and the Stock
Exchange authorities expressed the
view. that the term settlement could
not be considered on its merits until
the success of the new Stock Clearing
Corporation is fully tested. If the new
machinery succeeds, then the agitation.
for the term settlement may be ex-