Money-at-Call

What is Money-at-Call?

Money-at-call is any type of short-term, interest-earning financial loan that the borrower has to payback immediately when the lender demands.

Understanding Money-at-Call

Money-at-call, also known as call money or "at call money," is any financial loan that is payable immediately, and in full, when the lender, usually a bank, demands it. Typically, it is a short-term, interest-paying loan from one to 14 days made by a financial institution to another financial institution. Due to the short term nature of the loan, it does not typically feature regular principal and interest payments, which longer-term loans might.

Typical money-at-call loans do not have set repayment schedules and the interest rate on such loans is called the call-loan rate. Money-at-call gives banks a way to earn interest while retaining liquidity and, after cash, it is the most liquid asset on their balance sheet. Investors might use money-at-call to cover a margin account.

Participants in money-at-call markets include banks, Primary Dealers (PDs), development finance institutions, insurance companies, and select mutual funds. Banks and PDs can operate both as borrowers and lenders in the market.

Money-at-call differs from "short notice money," which is similar but does not require immediate payment when called. Rather, there is a time range of up to 14 days that the lender has to pay back the loan. "Short notice money" is also considered to be a liquid asset that trails cash and money-at-calls in terms of the degree of liquidity. Aside from generating interest, money-at-call's true value is in providing banks the opportunity to profit from surplus funds and maintain proper liquidity levels.

Money-at-call is an important component of the money markets. It has several special features, including as an extremely short period funds management vehicle, as an easily reversible transaction, and as a means to manage a balance sheet. The transaction cost is low, in that it is done bank-to-bank without the use of a broker. It helps to smooth the fluctuations and contributes to the maintenance of proper liquidity and reserves, as required by regulations. It also allows the bank to hold a higher reserve-to-deposit ratio than would otherwise be possible, allowing for greater efficiency and profitability.

Other Types of Money-at-Call

Many different types of financial instruments can be "called" or declared payable immediately. Short-term lending by banks is callable by the lender. However, many money-at-call instruments are callable by the borrower. The most notable is a callable bond.

Many types of bonds can be called, or be required to be redeemed before maturity, and this provision is written in the bond's indenture and prospectus. These bonds usually have a period when they are not callable, but then switch to callable for the rest of the life of the bond. For example, a 30-year bond may have a 10-year call feature, meaning the bond becomes callable after 10 years. Typically, the bondholder receives a premium above the par value, or face value, of the bond.

Other fixed-income securities, such as certificates of deposit, may also have call features. Even common and preferred stock may have call features if a company wants the option to buy back its shares at a certain price.

How Money at Call Works

For example, brokerage Firm A wants to buy some shares of Company X. Firm A plans to buy a few thousand shares of Company X on behalf of their client, but the client wants to buy the shares on margin and agrees to pay Firm A for them in 12 days.

Firm A believes that their client will be good for the money, so it covers its costs for the purchase of the shares by borrowing money-at-call from Bank XYZ. Because Firm A expects to complete the transaction quickly, Bank XYZ does not set up a payment schedule but reserves the right to call the loan at any time. If Bank XYZ calls the loan before the 12 days up, Firm A can collect the money by issuing a margin call to its client.