457. Interest against Collateral

65:27 If a Jew lends money to a non-Jew against some collateral he has provided with a certain amount of interest payable each month, he may afterward go to a friend to lend him money against this collateral, taking the interest that the non-Jew is paying from the day of the loan until it comes due. However, if the principal and the interest of the original transaction have been calculated into a single sum that is all payable when the loan is due, then it’s the same as principal would be in a transaction with another Jew, and one may not borrow from his Jewish friend against this collateral with interest because it’s the same as if the Jew paid the interest himself.

If a Jew deposits money with a non-Jew, who then lends it to another Jew with interest, it is permitted so long as the non-Jew is responsible for the money. For example, if the borrower defaults, the non-Jew must repay the Jew who deposited the money with him. If the non-Jew is not responsible, then such a loan would be prohibited. Therefore, it is problematic when banks and similar institutions have Jews owning shares in the company and other Jews borrow there with interest, even if the managers are not Jewish. (As always, please consult with your own rabbi for matters of practical application.)