Collateral
Definition
An asset pledged as security for a loan, which can be seized by the lender if the borrower defaults.
Explanation
Collateral reduces credit risk for lenders and lowers borrowing costs. Mortgages are collateralized by the property itself. Margin loans are collateralized by the securities in the account. Repo agreements are collateralized by Treasury bonds. The loan-to-value (LTV) ratio measures the loan amount relative to the collateral value — higher LTV means more risk for the lender. In the 2008 crisis, falling home prices pushed LTV ratios above 100% (underwater mortgages), triggering a cascade of defaults.
How Stoquity Uses This
Stoquity incorporates collateral analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.