As we have seen, a banker in some cases is willing to lend money to a good customer for a short period without security, but in most cases a banker requires the deposit of some form of security as cover to the loan.

Perhaps the most usual form is the deposit of Stock Exchange securities. The character of the greater part of a banker's security depends upon the character of his business. In a neighbourhood like the West End of London, Stock Exchange securities will perhaps greatly outnumber the remaining forms. In a country town, it may be that deeds of title to land form a large proportion; in a seaport town very likely a considerable amount of money will be lent on bills of lading and other shipping documents.

Government stocks, good debentures and other "gilt-edged" securities, form excellent cover for a banker against advances. He can either acquire a general lien against such securities, an equitable title or a legal title... The application of the banker's lien has been considered in a former chapter. If the securities are deposited under a memorandum or deed of deposit, the banker, in the case of negotiable securities, such as bearer bonds and scrip, acquires upon the default of his customer, a full legal title. Provided he took the securities without legal "notice" of any defect in his customer's title, he can maintain his right to them against all comers, notwithstanding any such possible defects. The banker must however be careful that circumstances do not occur which can be held to affect him with "notice." The Courts are in many cases, especially where a trust is concerned, strict in their interpretation of the term notice, and if anything should occur to make the banker suspect that the securities are held by his customer in trust, he should either obtain a clear explanation or refuse to accept the security.

In the case of shares of companies registered under the Companies Acts, the deposit of the share certificates only gives the banker an equitable title. The difference between the two is this: a legal title always has the priority over a mere equitable title. The danger of an equitable title is that, unknown to the banker, some one else may have either a prior equitable title or a legal title, in which case the former will have to surrender the securities. In order that a banker may obtain a legal title to shares in a company, it is necessary in nearly all companies to have the shares transferred into the name of the banker, or, as is usually done, into the names of some nominees of the banker, and also to have this transfer registered in the books of the company. Until the transfer has been so registered, the banker will have but an equitable title, which will be liable to be postponed to a prior equitable title, either of the company or perhaps in favour of some trust of which the banker was unaware.

Practice varies among bankers, but it is certain wiser in the majority of cases to have the shares transferred and registered. At one time the custom prevailed of obtaining the customer's signature to a blank transfer deed, which could be filled up and registered when the occasion demanded, but it has been decided by the Court of Appeal that a transfer so drawn up is not a legal or effective document.

Cases may arise where it is inexpedient to obtain a legal title to shares, as for instance when the shares are not fully paid. Bankers will not willingly accept as security shares on which there is a balance of uncalled capital. Mining shares and certain classes of industrial shares are avoided by the average banker, not only on account of their speculative character, but also by reason of the fact that they are seldom fully paid, but if a banker is compelled to accept such shares for want of a better security, it is wiser not to transfer the shares, in order that the banker may not be saddled with the responsibility for the uncalled balance.

Another very general form of security offered to a banker consists of title deeds to landed property. This forms a very fair class of banker's security, though it suffers from the disadvantage that such property is not always easily marketable, and a forced sale is apt to result in a price very much below the normal one.

As in the case of Stock Exchange securities, a banker may either obtain a legal mortgage or an equitable mortgage. Speaking generally, bankers do not lend on legal mortgages. If a customer wishes to execute a legal mortgage he usually consults his solicitor, not his banker, for the solicitor can usually find someone willing to lend money for a longer period than is expedient to a banker, someone who has not the banker's responsibilities, and who is willing to regard the transaction as a more or less permanent investment of capital.

Bankers usually obtain the deposit of the title deeds under a memorandum, which constitutes an equitable mortgage. The only drawback to this is, as in the former case, the possibility of its being postponed to a prior equitable mortgage or a later legal mortgage, but the latter danger can be guarded against if the banker keeps the title deeds continually in his possession, and does not part with them even for a short interval, as without the possession of the deeds it is not possible to execute a legal mortgage.

In dealing with title deeds there are several points to remember:

(1) The deeds should be immediately submitted to a competent solicitor for a report as to their genuineness and correctness.

(2) The property should be valued at frequent intervals. Certain classes of house property rapidly deteriorate in value if they are not kept in a proper condition of repair.

(3) In dealing with leasehold properties, allowance must be made for the fact that their value declines as the term of expiry approaches.

(4) The customer should be required to produce the receipt for the ground rent of leasehold properties as soon as the period for payment has passed, since, if this be not paid, the lease may be forfeited.