increased
rehypothecation (repledging) of safe assets.
137 (2014) (noting that the role of banks in providing leasing services has progressively expanded); see also Manmohan Singh & James Aitken, The (sizable) Role of
Rehypothecation in the Shadow Banking System (IMF.
As Singh and Stella (2012b) explain, "collateral that backs one loan can in turn be used as collateral against further loans, so the same underlying asset ends up as securing loans worth multiples of its value." In other words, thanks to
rehypothecation, which means re-using the collateral pledged by the counterparty for its own use, collaterals can be re-used many times (Andolfatto et al., 2014, p.
In addition to these very low, or even zero, margin requirements, LTCM was able to negotiate other favorable credit enhancements with its counterparties, including two-way collateral requirements,
rehypothecation rights, and high thresholds for loss.
(62.) See
Rehypothecation, Investopedia, http://www.investopedia.eom/terms/r/rehypothecation.asp (last visited Mar.
China discovered what London bankers have long exploited by means of
rehypothecation of assets, borrowing and reborrowing up to four times the value of underlying assets to generate new cash for trading.
(8) For background regarding the rise of the
rehypothecation (repo) market and its role in the financial crisis, see generally GARY B.
ReHypothecation Scandal." Available at http://newsandinsight.
In addition, proposed regulations to implement this provision of Dodd--Frank would forbid or attenuate the practice of
rehypothecation, whereby the recipient of collateral can sell or otherwise use the collateral as if it were the recipient's property.
First, TBTF is of particular relevance in over-the-counter derivatives markets where there is '
rehypothecation' of collateral implying multiple re-use and very high leverage.
As a result, the same underlying security can be used as collateral several times in a process called "
rehypothecation." Although Gorton has suggested that the gross size of the repo market may have reached $12 trillion, that estimate involves some double counting of both the asset and the liability side of single transactions.