SECURITY COLLATERAL LOAN MARKET 277
loans on securities came to constitute centralized reserves
which, next after till money, were depended upon by banks
everywhere to maintain their liquidity and solvency.
To condemn either the Stock Exchange or security loans
for the lapses and defects of this system, seems thoroughly
beside the point. No other stock exchange in history ever had
such a responsibility for bank liquidity thrust upon it. Cer-
tainly the New York Stock Exchange never sought and did
not relish a banking system which constantly imposed insta-
bility and artificially violent price movements in the securities
market. In the defective condition of American banking, “call
loans” were not a cause, but actually a partially effective
remedy. At least, the development of the call loan market in
New York was a natural and constructive evolution, even if
burdened with improper banking functions; in addition to con-
stituting the only existing mechanism for centralizing interest
rates and surplus bank reserves, it performed spasmodically yet
very extensively a vital work in facilitating the flotation of the
great amounts of new American securities which the building
up of our vast continental areas continually required. It is one
of the ironies of American history that the New York stock
market was rarely thanked for its long and valiant services in
behalf of American banking and industry, and continually
assailed for the recurring financial crises imposed upon it by
the unwisdom and inertia of American banking legislation.
The Federal Reserve System.—The financial crisis of
1907 at length compelled legislative consideration of a better
banking and currency system. In 1913 the Federal Reserve
Act was passed and the establishment of the new central bank-
ing mechanism for which it provided, began. Unlike the Bank
of England, which had experienced a slow and mainly empiri-
cal growth since 1604, the Reserve system thus sprang full-
armed from the foreheads of our legislators, and factors of a
temporary and purely theoretical nature inevitably played an
important part in its formulation. The new Reserve banks,
