Marketable collateral is the exchange of

financial assets A financial asset is a non-physical asset whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies' share capital. Financial assets are usually more liquid than other tangible assets, such as ...

, such as stocks and bonds, for a loan between a financial institution and borrower. To be deemed marketable collateral, assets must be capable of being sold under normal market conditions with reasonable promptness at a

fair market value The fair market value of property is the price at which it would change hands between a willing and informed buyer and seller. The term is used throughout the Internal Revenue Code, as well as in bankruptcy laws, in many state laws, and by several ...

. Conditions are based upon actual transactions on an auction or similarly available daily bid, or ask price market. For

national banks In banking, the term national bank carries several meanings: * a bank owned by the state * an ordinary private bank which operates nationally (as opposed to regionally or locally or even internationally) * in the United States, an ordinary p ...

to accept a borrower’s loan proposal,

collateral Collateral may refer to: Business and finance * Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan * Marketing collateral, in marketing and sales Arts, entertainment, and media * ''Collate ...

must be equal or greater than 100% of the loan or credit extension amount. The bank’s total outstanding loans and credit extensions to one borrower may not exceed 15 percent of the bank’s capital and surplus, plus an additional 10 percent of the bank’s capital and surplus.

Risks

Declination of collateral value is the primary risk of securing loans with marketable collateral. Financial institutions closely monitor the

market value Market value or OMV (Open Market Valuation) is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with ''open market value'', ''fair value'' or ''fair market value'', although the ...

of any financial asset held as collateral. and take appropriate action if the value subsequently declines below the predetermined maximum loan-to-value ration.

References

Loans {{economics-stub