City Discounts Larger

With regard to the discounts at the city office, there will be, of course, larger accounts and larger transactions than are to be found in the country offices. The wholesalers bring in big batches of drafts and notes, payable in all parts of the country. Large corporations negotiate special loans. A minute description of the kinds of business encountered will not be entered upon, as it would take up altogether too much space, but a brief sketch of one phase of city banking - that connected with call loans on stocks and bonds-will be given.

Call Loans On Stocks And Bonds

Every bank has, from time to time, a certain fund of day-to-day money. A considerable amount of loans and discounts may be paid off in the ordinary course of business, or there may be a substantial gain in deposits. No matter at what branch this happens, it is sure to be reflected by a rise in the cash at the central branches. It is so because the branches invariably remit all funds not needed for branch purposes to the centres. So, when the central branch finds its cash getting unnecessarily high if no permanent or long-time employment offers, it will put out some on the call loan market.

In New York city there is a regular place in the Stock Exchange assigned to the money brokers; it is called the money market. The money brokers find out every morning from the banks how much each one is prepared to put out. The Stock Exchange houses who want money bid for it to the money brokers. The bids are expressed in rates per cent. of interest. The money brokers do not pay over the money, nor do they pass on the security; they simply give the would-be borrower the name of the bank that will lend to him, and he must go there with his security and get the money if it be approved.

The business in the Canadian cities is hardly extensive enough for the employment of go-betweens Generally, the banks have telephone or personal requests from the Stock Exchange houses for the loans that are required. When they wish to put money out they make loans to the stock brokers as applied for until they have put out as much as they wish to. It is by means of these loans that speculation in stocks is carried on.

An Example Of A Deal In Stocks

The speculator thinks Toronto Railway stock is going to rise, and wishes to make a profit from the occurrence. It is selling, say, at 151. He instructs his broker to buy one hundred shares at 151. The broker does so. The purchase price of the shares will be $15,100. The speculator will be charged, in addition, with $25, being his broker's commission at 3 1/4 per cent. on the par value of the stock purchased. The speculator does not figure upon paying $15,125 of his own cash for these shares. Quite probably he will only have $2,000 or $3,000 available. He merely pays in a margin either equal to ten points on the stock, which would be $1,000, or ten per cent. of the cost price, which would be, roughly, $1,500.

This cash he pays in is credited to him on the broker's books; he is charged with the cost of the stock, plus the commission. Say he pays in $1,500. He will then be indebted to the broker for $13,625, and the broker will hold on his books the hundred shares of stock as security. Now, the broker himself does not calculate to put $13,625 of his own money into the deal. He figures upon getting most of it from the bank. From the brokers the banks demand a 20 per cent. margin as a minimum. So the broker takes the $1,500 given him by the speculator, adds to it, say, $1,100 of his own money, and, taking the stock certificates to the bank, gets a loan of $12,500. The bank does not recognize the speculator at all. It has nothing to do with him. It deals with the broker. The broker's loan will stand on the bank's books thus: "Jones & Co., payable at call, $12,500 versus 100 Toronto Railway at 151 = $15,100: margin, $2,600, or 20.80 per cent. of the loan." The broker, when handing in the stock certificate, hypothecates the shares to the bank, undertaking to keep up at all times a full 20 per cent. margin on his loan, and giving the bank the right to sell the stock and apply the proceeds to the debt in case of the 20 per cent. margin becoming impaired. This loan of the bank's is payable at call, which means that it has the right, also specified in the hypothecation, to call on the broker to pay off the principal any day it has a mind to, and if he cannot or does not do so the bank may sell the stock and apply the proceeds on the debt.