Miscellaneous. 



[Oct. 1906. 



given by a bank to a borrower on payment of a mortgage bond executed by him. 

 It expressly indicated the property mortgaged, and the property alone was the 

 material guarantee for the specific bond. The bank was only an intermediary 

 between a borrower and lender, who were in direct relation with each other, and 

 the bank merely gave its guarantee that the mortgage was a good one, and that 

 payments would be duly made. The lender received the debentures from the 

 bank, sold them in the market and converted them to money. The lender looked 

 to the borrower for principal and interest, and not to the bank which only took 

 proceedings against the borrower in case of non-payment. This, of course, was a 

 great advance from the mere private system of mortgage. The man whu had money 

 to invest, had only to buy the bonds in the market, without making any enquiry as 

 to the value of the property mortgaged or the validity of its title. He had the 

 guarantee of the Land Bank which was liable in the property of all its members for 

 the guarantee. If the mortgager failed to pay up, the lender was paid by the bank. 

 If the lender wanted the money at any particular time or for any emergency he 

 could sell his bonds in the market, thus transferring his debt to another creditor. 

 This took place without any expense save brokerage, if any. If it was a case of 

 private mortgage, where the mortgagee wanted money immediately, the mortgager 

 must make a diligent search for another mortgagee and transfer his mortgage to him* 

 provided he succeeded in finding one. Even then he had to incur further heavy 

 expenses for notarial fees, stamps and registration. Moreover, the holder of bank 

 debentures need only sell so many only as he finds necessary to do— the debentures 

 being usually bonds for small sums— whereas a mortgagee must transfer the whole 

 debt or nothing. 



Hence the debentures of Landschaften became current stock which very soon 

 rose to its par value and maintained its value even in the worst times. The borrower 

 himself had loans for long terms without fear of foreclosure so long as he paid his 

 dues. He could get as large a loan as he wished on a primary mortgage to the land 

 bank instead of giving to two or three lenders, and borrowing money on secondary 

 and tertiary mortgages and incurring heavy expenses. In course of time, however, 

 a further modification was made in the form of debentures — a modification which 

 has greatly enhanced the usefulness of debentures. The modification is this, viz., 

 s> the bank issued its debentures in its own name without specifying any particular 

 property as security. There were two advantages in this change. First, the 

 buyers of the new bonds became creditors not of any particular individual but 

 of the bank, and their security was not any particular property, but the whole 

 mass of the security held by the bank, plus the bank itself. Secondly, the 

 debtors found it possible to reduce their capital liability, by payment of a small 

 percentage in the shape of a sinking fund. Under the old system of debentures 

 this was impossible, as the debtors made their periodic payments of interest not 

 to the bank itself but directly to their creditors, and no creditor would receive 

 his principal by petty sums spread over many years. These new debentures, 

 generally payable to bearer or to order, are those now in universal use on the 

 Continent, and funds to any required extent could be raised by this issue. Indeed, 

 under this system of debentures all immovable property may now be said to 

 be capable of being mobilized. The landed property of a whole country may 

 thus circulate in the market in the form of debenture bonds. The Credit Fon- 

 der de France issues its debentures in masses of ten millions to thirty-six millions 

 of pounds sterling, the plan adopted being to divide them into numerous series, 

 and issue them by series as soon as loans have been effected to the value of a 

 series. For example, in 1879 a loan of thirty-six million pounds was sanctioned and 

 divided into 180 series, each consisting of 10,000 bonds and making a total of 1,800,000 

 bonds. Each of the series of 10,000 bonds was of the nominal value of £200,000. In 



