, individuals cannot commit to the use of collateral as a guarantee of repayment, and both lenders and borrowers have incentives to … renege. Our theory provides a micro-foundation to justify the borrowing constraints that are widely used in the existing … macroeconomic models. We provide an explanation to the question of why assets are often used as collateral, rather than simply as a …

states where collateral value is high and maximizes borrowing capacity when it is low. Haircuts increase both with … counterparty risk and asset risk. In equilibrium, lenders choose to re-use collateral. This increases the circulation of the asset … and generates a "collateral multiplier" effect. Finally, we show that intermediation by dealers may endogenously arise in …