"Security" in the Fed Box

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Question:

We have a question concerning marking the boxes under "Security" in the Fed Box. Is there a problem with automatically marking the boxes that say, "collateral securing other loans with you may also secure this loan" and "my deposit accounts and other rights to the payment of money from you".

Answer:

Yes and no.

See if this makes sense. If there are no other loans, you should not cross pledge this loan to loans that do not yetexist. (Collateral on this loan made today cannot be automatically pledged to loans made later.) When the next loan is made, it can refer back to this secured loan. You need to watch your contractual language and other collateral to ensure that rescission does not apply.

Marking deposits as collateral is common and can reassert your rights (that should already be stated in your deposit agreement) to setoff.

First published on BankersOnline.com 11/5/01