Recording And Handling

At branches where there are a great many collaterals it takes a good deal of watchfulness and care to keep the records and accounts clearly and properly, and there is room for the exercise of ingenuity in the book-keeping. At the small branches the collateral notes are usually assigned to the discount clerk. Before he can take them they must, of course, be passed or accepted by the manager. They may come to him accompanied by the note for discount which represents the loan made against them; or they may come as a deposit of additional security against a loan or loans already made.

Hypothecation

When the bank takes collaterals it must exercise care, as it does in taking-bills for discount, to see that they are properly drawn, filled, signed and endorsed. There is the same necessity for establishing the authenticity of the signatures. And there are one or two things required that are not required in the case of the others. When a bill is discounted the bank buys the bill; the cheque it takes for the proceeds provides it with all the receipt it needs, as that enables it to prove that it holds the bill for value given by it. With collaterals the case is different.

They are lodged as security for bills discounted or to be discounted. In order that it be invested with a secure title to them it requires that they be hypothecated, or assigned, to it. Each bank has its solicitors draw up a form of hypothecation or assignment that will, when signed by the rightful party, transfer to the bank the title to the notes and the property in any liens they may carry. This form of hypothecation is printed at the head of a sheet whereon are blank lines and spaces for entering the particulars of the bills lodged.

Collateral Lists

Every bill lodged must be described in a manner to permit its being identified - the name of the promissor or promissors, the due date, and the amount being essential in each case. The lists of notes are called collateral lists.

All that has to be done at the moment the notes are lodged is to have them properly hypothecated to the bank. It may be necessary also to calculate at once the proceeds of a bill discounted against them, but when the collaterals are duly hypothecated they can, if necessary, be placed in a clip and put through at leisure later in the day.

Quite often collateral notes are drawn with interest; that may have to be calculated and added to the face of the notes. They must be carefully read over and due dated. When certain that the notes are correctly entered on the collateral lists, the clerk may proceed to enter them in the collateral ledger or register.

The Collateral Ledger

The purpose of this book is to show the record and balance of the collateral notes held on account of each customer having advances on that kind of security. It may include also the record and balance of other kinds of security held against discounted paper. The customers' accounts are arranged in their alphabetical order as far as possible, and indexed. The notes are entered in the same order as they appear on the lists. They may be numbered in the same manner as the collections and discounts; i.e., the numbers in each account running consecutively forward as one list follows another; or, the lists may be numbered as they come in, irrespective of the accounts to which they belong, and the notes on each list numbered consecutively, beginning at "one." If the latter system is followed the numbering, for example, on the seventy-fourth list received would run: 74/1, 74/2, etc. It is desired usually to have the collaterals so numbered as to proclaim their nature as collaterals at the first glance.

The particulars required in the ledger are: Date received, number, name of promissor and of endorser, if any (the customer himself endorses all the notes in his account, but he is not considered an endorser), date of note, term, due date, amount. On each page, after the columns reserved for these particulars, are at least three more-one each for debit, credit, and balance.

When a list is deposited the total is extended into the credit column and added to the balance previously existing. The balance shown represents the amount of collateral notes held on the customer's account. After they are entered in the ledger the notes are diarized and handed over for checking and filing away, the same procedure being followed as in the case of the discounts and collections. The list forms, which contain the hypothecation of the notes, are filed away so as to be easily accessible.

The remarks made in connection with the notification of discounted bills apply with equal force to collateral notes.