Rehypothecation

Summary of Rehypothecation

The act whereby a lender uses negotiable instruments or similar collateral left with him by borrowers as collateral for his own borrowings. Rehypothecation commonly occurs when a member bank pledges eligible customer collateral at the Federal Reserve for a loan. The original borrower’s hypothecation (read this and related legal terms for further details) agreement routinely conveys to the lending bank the right to repledge, i.e., rehypothecate, the collateral.

(Main Author: William J. Miller)