Really " collateral security." This is a security for the performance of agreements, or for the payment of money, and is something deposited with the evidence of debt to satisfy the claim of the lender in case of failure on the part of the borrower to meet the indebtedness when due. For example, Prescott & Co. desire to borrow $100,000, and to facilitate the operation agree to deposit with the bank which is to loan them the money, bonds or stocks of known value, and acceptable to the bank, having a market value of, say, $120,000; being salable at the time of loan for about $20,000 more than the amount borrowed. This $20,000 is called the "margin." Suppose the market value of these securities declines to $100,000. By agreement, the bank could demand Prescott & Co. to either pay off part of the loan, or deposit additional security equivalent to the decline in the market value of the collateral. If this is not forthcoming the lender has the right to make a public sale of the securities; it being immaterial whether the loan is a " demand " or " time loan."

11896 Report of the Director of the Mint.

If, when the loan matures, Prescott & Co. are unable to pay it, the bank would have the right to sell the collateral, and from the proceeds first deduct the amount due for principal and interest; the balance, if any, it would pay back to Prescott & Co. In the case of a loan upon collateral security, therefore, the value and character of the collateral is the first consideration. A loan may be made with reasonable safety to a firm of even comparatively unknown reputation, if it is able to deposit security of established and well-known value, whereas, in the case of loans made without collateral, the financial standing and condition of the borrower must be the main consideration. Twenty per cent, is about the usual margin required.

Wool dealers often borrow money against wool, which, in that case, is security; so, likewise, in other kinds of business, similar loans are made.

Loans on "collateral" are usually made on "call," as explained under "Demand Loan," but are, nevertheless, frequently made on time, for thirty, sixty, or ninety days, or even six months or a year. If they are made in this manner the time is usually for six months or less. They may be either "discounted" or made with interest payable at maturity, as the case may be. The borrower usually has the privilege of substituting collateral for that already pledged; that given in exchange, however, must always be satisfactory to the lender. In case of investment bankers, whose securities are continually changing as they buy and sell, or in the case of a stock broker who is buying and selling for his clients, the privilege of exchanging collateral is very necessary. In such an exchange as this, the borrower usually hands in with his new collateral an "Exchange of Collateral " slip, which describes the new security pledged as well as that withdrawn.

By the above it will be seen that collateral loans may be known as "demand collateral paper" or "time collateral paper."

Form for a " Demand Collateral Note:"

9,000 Dolls.....cts. Springfield Mass., Jan. 3, 1906.

On demand, for value received, with interest at the rate of 5 per cent, per annum I promise to pay to The Cattlemen's National Bank, or order, at its Banking Rooms, Nine Thousand 00/100 Dollars, I having deposited with said Bank, as General Collateral Security for the payment of this and any other liability, direct or indirect, of the undersigned to said Bank, now contracted or hereafter to be contracted, the following property, viz.: 100 Shares Mountain Manufacturing Company Stock, with authority, on the non-payment of any such liability, to sell and transfer, at any time or times, said property, or any part thereof, at " Brokers' Board " or at public or private sale, without notice; and the said Bank, or any of its officers, may become purchasers at any such sale, if public, or at Brokers' Board; and any property substituted for the above, or added thereto, shall be also covered by this agreement. A margin satisfactory to the holder or holders hereof to be kept good at all times, and this note shall be deemed to be due and payable immediately, anything hereinbefore expressed to the contrary notwithstanding, on my failure to make such margin good upon demand by the holder or holders hereof, and they may immediately reimburse themselves by sale of the security.

After deducting costs and expenses of collection and sale, the residue of the proceeds of any such sale or sales may be applied to the payment of any then existing liability of the undersigned to said Bank, whether then due or not, returning the overplus to the undersigned.

Frank Castleman

Form for a " Time Collateral Note: "

9,000 Dolls.....cts. Springfield, Mass., Jan. 3, 1906.

Six months after date, for value received, I promise to pay to The Cattlemen's National Bank, or order, at its Banking Rooms, Nine Thousand 00/100 Dollars, I having deposited with said Bank, as General Collateral Security for the payment of this and any other liability, direct or indirect, of the undersigned to said Bank, now contracted or hereafter to be contracted, the following property, viz.: 100 Shares Mountain Manufacturing Company Stock, with authority, on the non-payment of any such liability, to Bell and transfer, at any time, said property, or any part thereof, at Brokers' Board or at public or private sale, without notice; and the said Bank, or any of its officers, may become purchasers at any such sale, if public, or at Brokers' Board; and any property substituted for the above, or added thereto, shall be also covered by this agreement. A margin satisfactory to the holder hereof to be at all times kept good, in default of which after demand, this obligation shall become due and payable on demand.

After deducting costs and expenses of collection and sale, the residue of the proceeds of any such sale or sales may be applied to the payment of any then existing liability of the undersigned to said Bank, whether then due or not, returning the overplus to the undersigned.

Frank Castleman