Re-using the collateral of others A General Equilibrium Model of Rehypothecation

Rehypothecation rights allow nancial institutions to re-use the collateral they received as lenders for their own secured borrowing. In this paper, I introduce rehypothecation into a competitive economy where agents face collateral constraints due to limited commitment. On the one hand, rehypothecation facilitates collateral circulation as pledged assets become available to support additional borrowing. On the other hand, limited commitment generates risk along the chain of repledges. I show that an ecient nancial structure without re-use rights can substitute for rehypotheca