The Washington times., 1924-03-04
BANKERS SEEK
BETTER LOAN
system
Present Call Loan Methods
Called Clumsy and Too
49,. Expensive.
BY w. s. COUSINS
Copyright. 1924. by Cosmopolitan
j, ..-' News Service)

News service)
NEW YORK, March 4.-BankerS
and stock exchange leaders seeking
Q substitute for, and an improve
Ment over the present call loan sys-
tenn In speculative markets, are APP
parently no further ahead today
than a decade ago, when the matter
first assumed serious proportions
While recognizing that daily settle
ments for security transactions ne
cessitate a vast amount Of duplicate
labor, and employment Of huge
sums OF money that might better be
employed in financing industrial and
commercial enterprises, those who
are working on the problem admit
inability to offer any plan that Will
protect the interests or the various
parties to these transactions, as
well as the clumsy and expensive
method now in use.
- Speculative Loans =.
Ever since the panic Of 1907 it
has been recognized by financial
leaders that one of the grave defects
OF the eountry's banking system
arose from financing of speculative
stock transactions by New York's
big commercial banks ami other
monetary centers.
Funds for this pun pose were de-
rived not only from their own
deposits, but also from the ire
serves" Of county banks through.
out the nation, loaned at low in.
forest rates to correspondent"
banks in these centers. ..'.
The Federal reserve system made
short work Of many problems
which for years mad engrossed the
attention of banking experts, but
took no definite action on the call
money market. AS II to show it's
: disapproval Of the Inargin-trading
system on stock exchanges, the
trainers Of the law. prescribed that
no ,rediscounting could be done on
paper representing stock exchange
transactions. in other words,
banks loaning money in speculative
call loan markets were thrown on
their own resources.
European System.
1t was hoped that the more sue.
Cessful systems of European finan-
ctal centers might profitably lie
adopted in this country. In Lon
don, for example. the foundation
for the call loan market Is not
speculative trading on the stock
market, but commercial bills GORE
spending to the American bankers
acceptance system) moving through
the open discount market. These
bills are collected by bill brokers,
sold to discount houses, to whom
''call loans" are extended by cen.
trail banks directlyN and the Bank
Of England indirectly. The published
official discount rate of the Bank
Of England, announced weekly gov
ems the whole commercial paper
market.
Trading on the London exchange
II accomplished by the system Of
fortnightly settlements" involving
the settlement Of balances every
two weeks, instead of daily, as is
the case in America. Brokers. mem.
bers of the stock exchange require
40 security for debit relations with
each other.
Idle Dollars Menace.
The stock exchange clearing house
has greatly facilitated day-to-day
settlements and deliveries between
members, considerably reducing
money tied up in carrying" margin
stocks. But efforts to devise term
settlements, even for week or part
Of a week, have thus far been fruit
less. Banks have right to do with
deposits as they choose, consistent
with sound banking; but there is
little doubt that the country's best
interests would be better served by
employment Of money and credit in
constructive enterprises rather than
speculative for which makes no con-
tribution to its economic stability.
Early in the post war period the
Morgan banking houses made an
effort to develop the discount mar.
ket by offering to make loans on
call, secured by bankers acceptances
ct one-half Of per cent less than
prevailing rates on call money on
the stock exchange, but 1t was dis
continued when it failed to produce
the desired effects.
Important reforms require q long
time in contamination but expe-
Pience has shown that idle dollars
are as great q menace to progress
- idle plants and idle people.