Thursday, April 30, 2009

call loan participation

call loan participations extended by city to their country correspondents is another avenue of entrance into the money market that is available for banks outside the money market centers. Although loan participations with city correspondents have long been standard practice, only in recent years have city banks been willing to extend this participation to call loans. This major innovation was generally introduced in the mid-1950 ’S and is now usually a vailable to country correspondents. When available, such call loan participations represent an attractive employment of short-term funds, because the call feature makes the loan available within one day of call. Furthermore, the interest return on such loan is considerably above the lower yields at the short end of the money market. Country banks sharing in these call loan participations, however, are usually expected to leave their funds in such employment at least a week or two. In some cases country banks have continuously employed funds in call loan participations for a number of months at a time.

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