The date, page, and number are added by the bank. After the loan department satisfies itself regarding the collateral the borrower is given either a check or a credit on his account, together with an engraved identification certificate bearing, say, a number and letters which correspond with the figures when a certain key is used. These identification slips must be returned signed by the firm, when the loan is paid. The key system is employed to make difficult the forging of these certificates; since a stock exchange firm uses so many messengers, the danger of delivering securities to unauthorized messengers would, without the keyed identification certificate, be great. After a tran script of its face has been taken, the broker's envelope of securities is filed. No evidence whatever of a loan appears on this envelope; it is simply a deposit of securities. The bank makes out a card for its own files describing the transaction. This peculiar use of a loan envelope descriptive of the collateral but not of the loan was established years ago to obviate war stamp taxes on securities deposited as collateral and also to expedite this form of loan; the trouble and time consumed in writing a special collateral note for each loan of this kind would make it quite impossible to handle the many loans now handled in the brief space of time between two and three o'clock in the afternoon.
The Loan Agreement All brokers and others borrowing money on collateral must sign a note or a form of agreement. In most cases an agreement is used; if the loan is on time a note is used. The note and agreement forms are somewhat similar, both giving the lending bank authority in case of default to use the securities pledged as collateral to clean up the indebtedness. They also authorize the bank to sell and use the proceeds of any other securities of the borrower held by the bank, and give it a lien on whatever balance the borrower may have as a credit deposit in the bank. The following is an abridgment of the typical agreement: Know all men by these Presents, That the undersigned, in con sideration of financial accommodations given, or to be given, or continued to the undersigned by the Bank, hereby agree with the said Bank that whenever the undersigned shall become or remain indebted to the said Bank for money lent, or for money paid for the use or account of the undersigned, or for any overdraft or upon any indorsement, draft, guarantee, or in any other manner whatsoever, the said Bank shall then and thereafter have the following rights, in addition to those created by the cir cumstances from which such indebtedness may arise against the undersigned, namely: 1. All securities deposited by the undersigned with said Bank, as collateral to any such loan or indebtedness of the undersigned to said Bank, shall also be held by said Bank as security for any other liability of the undersigned to said Bank, whether then existing or thereafter contracted; and said Bank shall also have a lien upon any balance of deposit account of the undersigned with said Bank, existing from time to time, and upon all property of the undersigned of every description left with said Bank for safekeeping or otherwise, or coming to the hands of the Bank in any way, as security for any liability of the undersigned to said Bank now existing or hereafter contracted.
2. Said Bank shall at all times have the right to require from the undersigned that there shall be lodged with said Bank as se curity for all existing liabilities of the undersigned to said Bank, approved collateral securities to an amount satisfactory to said Bank; and upon the failure of the undersigned at all times to keep a margin of securities satisfactory to said Bank, or upon any fail ure in business or making of an insolvent assignment by the undersigned, then and in either event all liabilities of the under signed, to said Bank, shall at the option of said Bank become im mediately due and payable, notwithstanding any credit or time allowed to the undersigned by any instrument evidencing any of the said liabilities.
3. Upon the failure of the undersigned either to pay any in debtedness to said Bank when becoming or made due, or to keep up the margin of collateral securities above provided for, then and in either event said Bank may immediately without advertise ment, and without notice to the undersigned, sell any of the securities held by it as against any or all of the liabilities of the undersigned, at private sale or Brokers' Board or otherwise, and apply the proceeds of such sale as far as needed toward the pay ment of any or all of such liabilities, together with interest and expenses of sale, holding the undersigned responsible for any de ficiency remaining unpaid after such application. If any such sale be at Brokers' Board or at public auction, said Bank may itself be a purchaser at such sale free from any right or equity of redemption of the undersigned, such right and equity being here by expressly waived and released. Upon default as aforesaid, said Bank may also apply toward the payment of the said liabilities all balances of any deposit account of the undersigned with said Bank then existing.
It is further agreed that these presents constitute a continu ing agreement, applying to any and all future as well as existing transactions between the undersigned and said Bank.