rehypothecation

1 9.9

A bank using things a client gives as a promise to pay back to get its own loan

noun
/ˌriːhaɪˈpɒθɪˌkeɪʃən/

Specialized

: rehipoteca

The bank practiced rehypothecation by using the collateral its clients had pledged to secure loans.

Examples

The big banks ran their repos through London, which has no limits on rehypothecation.

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(SEC Regulation T limits rehypothecation to 140 percent of broker/dealer loan balances.)

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Rehypothecation contributed to the meltdown.

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The financial institution's use of client assets for their own loans is known as rehypothecation.
In the process of rehypothecation, banks can utilize collateral from customers to back their own borrowing.

Surface Forms

rehypothecation singular

rehypothecations plural

Morphology

rehypothecation = hypothecation (opaque) = re + hypothecation

Although formed with the productive prefix 're-', the base 'hypothecation' is a rare, technical finance term, so average learners cannot derive the meaning from known components.

Etymology

Rehypothecation is made from re- 'again' and the Greek root hypotheca 'pledge' or 'security'. So it literally means 'pledging again', which helps explain the modern meaning: a bank can use a client's pledged asset again to secure its own borrowing.