Hedge funds and the rebound in collateral velocity

The reuse rate of collateral points to a growing fragility and interconnectedness in financial markets


Collateral velocity, an often-overlooked measure of fragility in financial markets, hit its highest level in a decade at the end of last year as global banks responded to the hedge fund industry’s growing appetite for leverage.

According to their latest annual reports, the world’s 18-largest dealer-banks held $9.4 trillion of pledged collateral on their books at the end of 2020, up more than 50% since 2016. This was driven primarily by an increase in collateral velocity – the reuse rate of

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