|
Hypothecation is the posting of collateral
to secure an obligation. Rehypothecation is the
reuse of posted collateral.
For example, if an institution receives collateral from a counterparty
to secure an obligation, that institution may rehypothecate the
collateral by lending
it, repoing it, or posting it as collateral for one of its own obligations to
a third party.
Rehypothecation is not permitted in some
jurisdictions. It is common practice in the United States. Any collateral
agreement should
explicitly permit or not permit rehypothecation.
|
