The Dictionary of Financial Scam Terms: The truth vs. the scam

 

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Hypothecation

 1. Banking. Offer of stocks, bonds, or other assets owned by a party other than the borrower as collateral for a loan, without transferring the title.  If the borrower turns over the property to the lender, who holds it in SAFEKEEPING, the action is referred to as a pledge; if the borrower retains possession, but gives the lender the right to sell the property in event of default, it is a true hypothecation.

  2. Securities. The pledging of negotiable securities to collateralize a broker's margin loan.  If the broker pledges the same securities to a bank as a collateral for a broker's loan, the process is referred to as re-hypothecationFitch, Thomas P., Barron's Business Guides Dictionary of Banking Terms, 3rd Edition, ©1997, page 228.

 

 

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