Collateral Value

Collateral Value is the market value of anything used as collateral to support a loan. This can create issues with margin requirements; if the asset begins to lose value the borrower would need to supply additional assets to underpin their loans. This was a large problem in the 2008 financial crisis as CDOs and other securities devalued and the already highly-leveraged firms were required to delever quickly and to raise more assets at a time when their capital was already in short supply.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Retained Earnings
• Fraud Triangle
• Accounts Receivable Turnover Ratio
• Marginal Cost Formula
• Nash Equilibrium