With borrowing costs at record lows and prices for top-tier artworks soaring at auction, private banks are increasingly doling out loans to ultra-rich clients who use their art collections as collateral.

Former hedge fund manager Michael Steinhardt and his wife, Judy, have pledged part of their $200+ million art collection for a loan on a Manhattan real estate project. They chose 20 paintings and drawings, including five by Pablo Picasso and one by Jackson Pollock, as collateral for a loan from JPMorgan Chase Bank NA, according to New York state records.

The loan was made for an investment in the former American Stock Exchange building, which Steinhardt bought for $65 million in cash earlier this year.

State records show that billionaire fund managers Steven Cohen and Nelson Peltz are among others who have pledged blue-chip artworks for loans in recent years.

“Going through the downturn in 2008, a lot of people realized that art weathered that storm very well and is a stable form of collateral,” said Suzanne Gyorgy at Citi Private Bank to Bloomberg. “When you look at our client base, its savvy business people that for the most part are using the liquidity from the art loan to invest back in their businesses."

Banks might advance loans equaling as much as 50 percent of the appraised value of the artwork received as security, and in the Steinhardt's case, the collectors have kept possession of the pledged artwork.

A cautionary tale for givers of this type of loan could be represented by American Folk Art Museum chairman emeritus and folk art collector Ralph Esmerian who double pledged millions in collateral to obtain $210 million in loans to purchase and operate jeweller Fred Leighton.

Esmerian was sentenced to six years in federal prison last July. He was ordered to pay a $20 million fine for bankruptcy, wire fraud and other charges.