STOCK EXCHANGE AND AMERICAN BUSINESS 48g
which he is engaged. We have seen that the savings bank is
interested in securities as an investor. The investment banker,
on the other hand, is chiefly an underwriter and dealer in se-
curities.”® Without a central organized market through which
to distribute the larger new issues and render the larger old
issues always negotiable, his business would revert rapidly to
conditions prevailing in the security market a century ago. The
commercial bank also has a contact of its own with the Ex-
change. For one thing, it usually holds listed bonds as a con-
siderable part of its surplus. For another, it often makes both
time and call loans on security collateral.
The economic function of such loans as well as their ad-
vantage to the commercial banker has been touched upon in
previous chapters.’™ Nor is this mutually beneficial connection
between commercial banking and the Stock Exchange confined
simply to the large banks and financial institutions of Wall
Street. The so-called “out-of-town banks”’—an elastic New
York expression which covers anything from the great banks
of Boston, Chicago, or Philadelphia to thousands of small
banks in all parts of the nation—also are interested in and to a
degree dependent upon the Stock Exchange, if not directly,
then by proxy,'® since they are accustomed to loan part of their
surplus funds on security collateral.
There is consequently a close and necessary connection be-
tween banks and stock exchanges, and the fact that in every
financial center in the world the former cluster about the latter
arises from this inevitable link, and their common interest from
the inherent nature of their kindred business in credit instru-
ments of one sort or another. Banking would be vastly more
hazardous without a Stock Exchange, while the Exchange
could not accomplish its vital work of rendering its listings
always negotiable without the employment of credit extended
by bankers.
Finally, many of our banks owe to the Stock Exchange a
16 See Chapter IV, p. 87.
17 See Chapter IV, p. 107, and Chapter XI, p. 301
18 See Chapter XI, p. 283.
