BROWSE

Call Loan Rate

What is 'Call Loan Rate'

The short term interest rate charged by banks on loans extended to broker-dealers. A call loan rate is an interest charged on loans made to broker-dealers who use the funds to make margin loans to their margin account clients. These loans are payable by the broker-dealer on call (i.e. on demand or immediately) upon receiving such request from the lending institution. The call loan rate forms the basis upon which margin loans are priced. The call loan rate can fluctuate daily in response to factors such as market interest rates, funds' supply and demand, and economic conditions. The rate is published in daily publications including the Wall Street Journal and Investor's Business Daily (IBD). Also called broker's call.

Explaining 'Call Loan Rate'

A call loan is a loan given to a broker-dealer that is used to finance client margin accounts. The interest rate on a call loan is calculated daily; this rate is known as the call loan rate, or broker's call. A margin account is a type of brokerage account in which the broker lends the client cash that is used to purchase securities. The loan is collateralized by the securities held in the account, and by cash that the margin account holder is required to have deposited. A margin account enables investors to use leverage; that is, they are able to trade larger positions than they would otherwise be able to. While this has the potential to magnify profits, trading on margin can also result in magnified losses.


Further Reading


The call loan market in the US financial system prior to the Federal Reserve System
papers.ssrn.com [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …

Cash setting, the call loan rate, and the liquidity effect in CanadaCash setting, the call loan rate, and the liquidity effect in Canada
www.jstor.org [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …

Financial markets and economic growthFinancial markets and economic growth
onlinelibrary.wiley.com [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …

Financial panics, the seasonality of the nominal interest rate, and the founding of the FedFinancial panics, the seasonality of the nominal interest rate, and the founding of the Fed
www.jstor.org [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …

Daily and intradaily tests of European put-call parityDaily and intradaily tests of European put-call parity
www.jstor.org [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …

The unholy trinity of financial contagionThe unholy trinity of financial contagion
www.aeaweb.org [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …

The effect of refinancing costs and market imperfections on the optimal call strategy and the pricing of debt contractsThe effect of refinancing costs and market imperfections on the optimal call strategy and the pricing of debt contracts
onlinelibrary.wiley.com [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …

National bank window dressing and the call loan market, 1865–1872National bank window dressing and the call loan market, 1865–1872
www.sciencedirect.com [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …

What is international financial contagion?What is international financial contagion?
onlinelibrary.wiley.com [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …

Pricing life‐of‐loan rate caps on default‐free adjustable‐rate mortgagesPricing life‐of‐loan rate caps on default‐free adjustable‐rate mortgages
onlinelibrary.wiley.com [PDF]
… Panic of 1907. “Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged …



Q&A About Call Loan Rate


Who uses this type of financing?

Commercial banks use this type of financing for maintaining cash reserve ratio and brokers use it for maintaining margin accounts.

In what market do international lenders lend to brokers in order to maintain margin accounts?

In the international market, lenders lend to brokers in order to maintain margin accounts.

Is it possible that both factors could cause an increase or decrease in Call Loan Rates at once ?

Yes, it

How long does the loan last?

The loan lasts one to fourteen days or overnight to a fortnight.

What is the interest rate paid on call money?

The interest rate paid on call money is known as the call rate.

Who uses the funds provided by a call loan?

Broker dealers use these funds for making margin loans to their margin account clients.

How does a call loan rate differ from other rates?

The call loan rate differs from other rates because it is an interest charged on loans made to broker-dealers who use the funds to make margin loans to their margin account clients.

Where can you find information about a call loan rate?

You can find information about a call loan rate in daily publications including the Wall Street Journal and Investor's Business Daily (IBD).

What are some examples of how market interest rates affect fluctuations in a Call Loan Rate ?

When market interest rates increase, so too will lenders' costs; as such, they will raise their lending rates accordingly. This causes an increase in the Call Loan Rate .

Does supply or demand have any effect on fluctuations in Call Loan Rates ?

Yes, when there is more demand than supply then lenders will be able to charge higher lending rates; conversely if there is less demand than supply then lenders will be able to charge lower lending rates.

What factors affect the fluctuation of a call loan rate?

Market interest rates, supply and demand, economic conditions all affect the fluctuation of a call loan rate.

What is a call loan rate?

A call loan rate is the short term interest rate charged by banks on loans extended to broker-dealers.

Why do brokers need this type of funding?

Brokers need this type of funding in order to provide financing for their client's purchases and sales of securities.