Obtaining a certificate of deposit (CD) secured loan from a bank where a CD is held is usually a relatively easy process.  However, obtaining a CD loan from one bank when the CD is issued by another bank is going to be a difficult endeavor.  It is highly unlikely that a bank will make a CD secured loan with a CD that has been issued and is held at another bank. 

There a number of advantages to obtaining a CD secured loan, some of which include a low interest rate, quick loan approval, and limited documentation.  The primary reason for these positive attributes found in a CD loan is based on the security of the loan.  The bank has complete control over the collateral for the loan, the certificate of deposit.  Unlike most all other secured loans, the collateral (the CD) never loses its value and is never outside the control of the bank.  These features make this a virtually risk free loan that can be approved quickly and managed effortlessly by the bank.

If the bank making the CD loan did not issue the CD and is not in control of the certificate, the bank loses some of the risk free advantages when granting such a loan.  Obtaining a valid lien on the account held at another bank to secure the loan could be problematic for the bank.  The borrower could redeem the CD early at the bank where is held or use the CD for other purposes while it is supposed to be collateral for the loan. 

In addition, the bank may have greater difficulty getting hold of the funds in the certificate if the borrower defaults on the loan, further reducing the value of the collateral.  Most account agreements with a bank will grant the bank the right of offset, which gives the bank the authority to use any other assets of a customer at the bank to pay a loan that is delinquent or in default.  The right of offset is commonly found in debt and deposit agreements with financial institutions.  Since the CD is issued by another bank, the right of offset does not apply which further devalues the collateral for the loan.

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