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Created on 25.02.2022

Lombard loans: money loaned against a pledge of collateral

There are various options for bridging a liquidity shortfall using a loan. In the case of a lombard loan, for example, the borrower deposits collateral such as securities with the lender. We explain how a lombard loan works in principle as well as the opportunities and risks it holds.

What is a lombard loan?

A lombard loan is a loan for which an asset is pledged as collateral. For example, account balances, life insurance policies, securities or other assets can be used as collateral. Lombard loans granted against securities are widespread. This involves the holder of securities pledging their shares or bonds (and similar assets) as collateral to obtain a loan.

What are lombard loans used for?

A lombard loan enables a borrower to cover their short-term liquidity needs without having to sell their assets. As with a personal loan, a lombard loan is used as a means of averting a temporary liquidity shortfall.

What is the difference between a personal loan and a lombard loan?

  • In the case of a personal loan, a lender lends a certain sum of money to a borrower. In return, the borrower commits to repaying the money (plus interest) in fixed instalments within a specified period of time. The lender checks the creditworthiness of the borrower in advance to protect themselves from risk.
  • In the case of a lombard loan, the collateral acts as additional security, as described. Lombard loans can be structured differently in relation to interest and the duration of the loan.

How does a lombard loan work in specific terms?

The following example is intended to illustrate how a lombard loan works. Let’s assume that some time ago you invested part of your savings in securities because you wanted to benefit from the opportunities for returns on the financial markets. Your securities custody account now contains shares and bonds worth around 150,000 francs. You are unexpectedly presented with a major investment opportunity and need 60,000 francs to invest. But you only have half the amount you need in your savings account. A lombard loan makes it possible for you to obtain the money without having to sell your shares and bonds. This means you can skim off the returns on your securities if prices increase (though you also bear risk if prices fall). At the same time, you grant the bank the right to sell your shares if you cannot repay your loan debt on time.

Why is the lending rate determined individually?

The assets pledged as collateral are mortgaged at a percentage of their respective market value; this is also referred to as the lending rate. This is determined on an individual basis, partly because not all securities have the same risk. But also because the value of the collateral is impacted by how tradeable the individual investments are and the diversification of the portfolio.

What are the most important opportunities and risks of taking out a lombard loan using securities as collateral?


  • Short-term access to liquidity: the borrower can obtain additional capital without having to sell existing assets
  • Comparatively low interest: since the borrower deposits collateral, a lombard loan is often characterized by relatively low interest rates in comparison to other types of credit.
  • Earnings potential is retained: if securities are used as the collateral for the lombard loan, the potential returns on the pledged securities are retained by the borrower.


  • Incalculable risk: the pledged securities are exposed to price fluctuations on the stock exchange.
  • Insufficient coverage: if the pledged assets decrease in value, the loan may no longer be sufficiently covered and additional collateral may have to be provided or the loan may have to be paid back.
  • Disposal of securities: if the borrower does not meet their obligations on time, the lender can liquidate the assets deposited as collateral.

Where does the term «lombard loan» actually come from?

The term “lombard” is derived from the northern Italian region of Lombardy, where money was being lent against collateral securities as early as the Middle Ages.

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