SECURITY COLLATERAL LOAN MARKET 285
through the “money desk” system on the floor of the New
York Stock Exchange. Both borrowers and lenders use which-
ever of these methods is most advantageous in the given case.
The personal element in such loans is an important factor in
the first case, less important in the second, and mainly inconse-
quential in the third. Also, the rates and conditions of loans
made by the first method are private and usually undisclosed,
in the second mainly so, and in the third a matter of common
public knowledge. Usually interest rates are about the same
in all cases, but when a considerable difference in rates develops
between them, funds tend to flow into the most profitable sec-
tion of the market and borrowers flock to the cheapest section
of it, with the result of speedily effecting an equalization in
rates between them again.
Time loans are never made through the “money desk” on
the Exchange, but are made either directly between borrowers
and lenders, or through a money-broker who charges the bor-
rower on the average 1/32% of the principal of the loan for
his services in obtaining the funds. On the other hand, a large
proportion of new call loans are made through the “money
desk,” and a very large proportion of all outstanding call loans
are renewed each day at the renewal rate posted there.
In order to diversify its risks, the New York lending insti-
tution naturally prefers to lend its funds to many rather than
to only a few security dealers and brokers. Similarly, a bor-
rower on security collateral usually prefers to obtain his funds
from several different lenders, in order to diversify the risk of
having an inconvenient amount of his loans called at one time,
The market has therefore developed the standard unit of
$100,000 for security loans, although such loans in multiples
of $100,000 and also for lesser amounts than $100,000 are
frequently made.
Changeability of Supply and Demand.—The extreme
liquidity of the call loan market permits of swift changes in
2 Soe Appendix XIf
