Stocks As Collateral Loans: Understanding The Role of Securities in Lending
Stocks as collateral loans, also known as securities-backed loans, are a type of loan where a borrower uses stocks or other securities as collateral to secure the loan. This arrangement allows borrowers to access funding without having to sell their stocks, providing them with both liquidity and potential upside from the underlying investments. A notable historical development in this area was the introduction of Regulation T by the Federal Reserve in 1934, which set limits on the amount of credit that could be extended against margin loans backed by securities.