296 THE WORK OF THE STOCK EXCHANGE
consulting leading and typical lenders, borrowers and money
experts. The initiative in establishing the renewal rate is
taken by the Executive Committee of the Stock Clearing
Corporation; after considering available statistics and circum-
stances relating to current money-market conditions, and ob-
taining the views of prominent and representative borrowers
and lenders, this Committee fixes the renewal rate. There is
usually a considerable body of facts to guide very accurately
the establishment of the renewal rate. The condition and rates
of the call money market the preceding day, the surplus funds
(if any) at its close, and other important factors are taken
into careful consideration. The renewal rate is made shortly
after 11:30 A.M., posted near the money desk on the Stock
Exchange and printed on the tape.
Since the renewal rate is merely an expression of expert
opinion, and not in any way binding upon either borrowers or
lenders, only to the extent that it is satisfactory to these lenders
and borrowers are loans actually renewed. It often happens
that a lender will refuse to renew his loans at what may seem
to him too low a renewal rate; he will therefore call his loans,
and endeavor to put his money out later on at a higher rate.
Similarly, borrowers may pay off loans in the belief that they
can reborrow later at rates lower than the posted renewal rate.
But so delicately and expertly is the suggested rate for renewals
made that it is usually recogfized as a very accurate indication
of the fundamental conditions of supply and demand, and
therefore as a satisfactory basis upon which to renew call loans
for at least a single day. Statistics®® show that during the
years 1922-29, the average variation between the average of
renewal rates and that of new loans made, has amounted to
only 0.04 of 1%, and in some years has been as low as 0.005 of
1%. These figures are conclusive proof of the accuracy with
which the renewal rate habitually accords with current rates
for new loans, which are of course established purely by bar-
tering between lenders and borrowers.
x See Appendix XIj.
