The Loan Clerk's Duties

The loan clerk at the bank watches the daily market fluctuations in stocks. He must see that the bank's margin of security is maintained in all cases. Thus, if Toronto Railway dropped to 145, that would make the value of the security held against Jones & Company's loan of $12,500 to be $14,500 instead of $15,100 The margin would be but $2,000, or 16 per cent. So immediately the bank would call Jones & Company for more margin.

As a matter of fact, the Stock Exchange houses generally have something more than the 20 per cent required, so that a moderate fall in prices does not impair it. Also, in actual practice, the identity of single transactions such as that just described, between the broker and the speculator in Toronto Railway, is hardly maintained. The bank informs the broker that it will let him have $50,000. He takes in and hypothecates a list of assorted stocks representing a number of transactions. This money that the bank is putting out may be wanted any time for the regular discounting business. Also, it is regarded as being part of the reserve against deposits. Usually, when loans are called the brokers called simply transfer the loans to other banks. But in making the loans the bank has to take into account the possibility that the borrowers may not be able to borrow elsewhere to pay it off when it wants the money. Therefore, it is careful to accept as collateral security only such stocks as can be readily sold in the market in the event of the borrower being unable to pay up on demand. Stocks with a "broad" market are preferred. That means stocks which are widely dealt in. They are better, because there is always a better chance of finding purchasers at a forced sale. What the bank officers have to be watchful about in making these loans is, first, to make them to reputable houses, then to be satisfied as to the genuineness of the certificates proffered as collateral, and to see that title to the security is properly conveyed to the bank - this after being satisfied that the real value of the security is as represented by the borrower, and that the required margin is actually there.