The subject of call loans in Canada, or elsewhere, as an asset of the bank has already been dealt with in Chapter VI (Analysis Of A Bank Statement. 1. Bank Statements) (Loaning A Bank'S Money 1. Experience The Only Teacher), Part I, and it is only necessary to describe briefly the methods of making such advances in Canada. These loans are generally made to brokers on satisfactory stocks and bonds listed in the local market, and with a margin of about 20 per cent and 10 per cent, respectively.

Two margin tests should be applied: first, a 20 per cent margin of security above the amount of the loan; second, ten points per share less than the market value of the stock. The first test insures an ample margin on high-priced stock, and the second discriminates against low non-dividend paying stock. For instance, 20 per cent on stock selling at $30 per share would mean a margin of $6 per share as against $10, or 33 1/3 per cent, called for by the second rule.

Figure 44 is the form in general use, and combines in one the hypothecation and the agreement of sale in case of default in keeping up the necessary margin. The discount clerk should see that every certificate of stock pledged is good delivery; that is, the certificate must be in the name of a responsible broker or the

.......................................191...

The undersigned hereby acknowledge to have received from THE ........................BANK...............

..................Dollars, as an advance, which sum will bear interest from this date.....................at the rate of..........per cent per annum, as well after as before maturity, and is repayable...............................

And the undersigned having cause to be transferred to the Bank, or to one or more of the officers thereof in trust, the following security, namely:...........................

to be held as collateral security for the payment of the said advance and interest, the Bank is hereby authorized to sell and convey the said security, or part thereof from time to time, whenever the Bank shall think proper, upon default in the payment of the said advance, and to apply the proceeds thereof towards its reimbursement, without prejudice to its claims upon the undersigned for any deficiency.

Should the said security depreciate in value before the maturity of said advance, the Bank is hereby authorized to sell and convey the same, or part therof, from time to time, without waiting the day of payment.

It is also hereby agreed that should the Bank at any time determine upon a sale and conveyance of the said security, or part thereof, from time to time, for either of the reasons above stated, such sale and conveyance may be made without notice to the undersigned, all and every formality prescribed by law or otherwise in relation to such sale and conveyance being hereby waived.

And it is further agreed that should the Bank allow the undersigned to substitute for the above other collateral security such substituted security shall be held by the Bank, subject to the same terms and conditions, and with power and authority to dispose of and apply the same in the same manner as the Bank could have done with the original security.

And it is understood and agreed that the Bank is at liberty to retain and use the above mentioned security (or substituted security) as collateral for any other indebtedness or liability, present or future, of the undersigned to the Bank.

In case any security or substituted security transferred to, or lodged with, the Bank is in the form of a certificate for shares of stock, with a blank transfer and power of attorney in blank to transfer the shares of stock on the books of the Company endorsed thereon or attached thereto, the Bank is hereby authorized, through any of its officers or employees, to fill in all blanks in such transfers and powers of attorney with such names and in such manner as may be thought best by the Bank, and to seal and deliver the same after such blanks have been filled in.

Witness the hand and seal of the undersigned.

............Shares.................... = @..........$

............ " ..................... = @..........$

............ " ..................... = @..........$

............ " ..................... = @..........$

Figure 44. Form for Hypothecating Collateral indorsement guaranteed by a broker whose signature the bank knows, and should be assigned in blank and witnessed. These requirements not only insure the genuineness of the stock, but also that claims for dividends are made on responsible brokers by the holders of the stock. To make a transfer every time a certificate changes hands would, of course, be impossible. Bonds should be scrutinized to see that they are payable to bearer, and all bonds, debentures, certificates of stock and similar certificates pledged as collateral for advances, or lodged for safe keeping, should be kept in the treasury under the joint custody of the manager and accountant. All securities, as soon as received, should be recorded in the securities register by the number of the certificate or bond, the name of the company, the number of shares, the par value of the shares and the name of the broker to whom the certificate is assigned. It should be the invariable practice of every bank to record the above particulars of any stock passing thru its hands, whether received as security or simply passing thru the bank's books attached to a draft. In case of the loss of the script such information has often proved invaluable.