rehypothecation Definition
- 1the practice where a bank or broker uses, for its own purposes, assets that have been posted as collateral by their clients to secure loans and other transactions
- 2the process of pledging the same collateral to multiple lenders in order to secure multiple loans
Using rehypothecation: Examples
Take a moment to familiarize yourself with how "rehypothecation" can be used in various situations through the following examples!
Example
The rehypothecation of client assets is a common practice among investment banks.
Example
The rehypothecation of collateral can increase the liquidity of financial markets.
Example
Rehypothecation can be risky for investors because it can lead to a loss of collateral if the bank or broker defaults on its obligations.
Summary: rehypothecation in Brief
Rehypothecation [ree-hahy-puh-thi-key-shuhn] is a financial practice where a bank or broker uses assets posted as collateral by their clients for their own purposes or pledges the same collateral to multiple lenders. It is a common practice among investment banks and can increase market liquidity, but it can also be risky for investors due to the potential loss of collateral.
