I have a number of CDs in Bank A. My primary bank is Bank B. I wish to get a line of credit from Bank B, secured by my CDs in Bank A. Bank B approves the line of credit secured by the CDs, communicates with Bank A, which approves the loan. Bank B sends my loan papers to Bank A for signature. After a month, Bank B and I inquire about the status of the loan papers. Bank A says it has lost the original loan papers, and now it believes it is illegal for me to use my CDs as collateral for a line of credit at another bank. At the same time, Bank A stopped sending interest checks from the CDs to us as was originally specified when the CDs were purchased. What is legal here, or is Bank A simply making life hard because they didn't have a loan product we could use?
Bank B is making a loan secured by CDs at Bank A. The problem is, if Bank A agrees to the loan/security agreement they accept liability. If they make an error and allow the CDs to be cashed, they may owe Bank B those monies and will have received nothing in return for their risk. In most cases, a Bank A won't do this. We're surprised there was any indication early on that they would.
Likewise, if Bank B is your primary bank, you should have the CDs there. They could then provide you with better loan pricing because the security would be funds of which they they have use. The CD rates you would have and any compensation they'll give you for penalties from Bank A would be separate from this.
Regardless of the pledge, you should be receiving interest on the CD either directly to you or into an account you designated. If the interest payments have ceased, you need to inquire with Bank A who holds the deposit.
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Bank B is making a loan secured by CDs at Bank A. The problem is, if Bank A agrees to the loan/security agreement they accept liability. If they make an error and allow the CDs to be cashed, they may owe Bank B those monies and will have received nothing in return for their risk. In most cases, a Bank A won't do this. We're surprised there was any indication early on that they would. 