SECURITY COLLATERAL LOAN MARKET 305
Thus, during the credit strain in 1920, commercial bankers
were frequently assisted in the difficult task of readjusting and
strengthening their position by being able to call in their out-
standing security collateral loans and thus protect their fre-
quently illiquid commercial loans. As the authorities of one
of the largest Wall Street banks stated at the time.
The crisis of 1920 demonstrated the fact that loans to the stock
market were the most liquid resources which the New York banks
possessed. . . . Loans to the stock market proved to be an ex-
tremely valuable liquid resource, and the ability of the stock market
to absorb securities, supplying the banks with new cash to lend for
other purposes, eased the situation greatly.
The much discussed commercial “deflation” of 1920-21 *
revealed itself in the fall of total loans, discounts, and invest-
ments of reporting Reserve members from their peak of
$17,283,996,000 on October I5, 1920 to a low point of
$14,726,585,000 on September 7» 1921. During the same
period, stock market loans fell from $973,074,000 to $680,-
448,000. In percentages, a 14% deflation in total member
bank loans, discounts and investments was thus accomplished
largely by means of a g 5% deflation in stock market loans, of
which 26% occurred before and 29% occurred after, the peak
of all credit extension on October 1 5, 1920. The earlier ar-
rival and greater severity of stock market than other deflation
here revealed, is typical of the stock market’s function as a
capital market for surplus funds,* and as a stabilizing factor
in our capital and credit markets.
The Size of Security Loans Outstanding.—The chief fac-
tors responsible for increases and decreases in the outstanding
amounts of stock market loans have to do with both money
and securities. On the money or supply side, both capital and
credit are conditioning factors. Capital, which represents
wealth permanently saved from present consumption, results
JA. Barton Hepburn and Benjamin M. Anderson, “The Gold and Rediscount
Policy of the Federal] Reserve Banks,” The Chase Economic Bulletin, Vol. 1, No. 5.
2 See Appendix XIm,
¥ See Chapter II, p. 53
