The amount by which the market value of the security used as collateral exceeds the face value of the loan. The repo margin is typically proportionate to credit worthiness of the borrower: the lower the credit worthiness, the higher the repo margin, and vice versa.
Generally, repo margin could range between 1% (100 basis points) and 3% (300 basis points). For low quality borrowers and collaterals it could spring up to 10% (1000 basis points).
Repo margin is meant to help lenders reduce their credit risk exposures. It provides some cushion especially in cases where the collateral’s market value decreases and hence sets lender exposed to potentially higher levels of credit risk.
It is also referred to as repo haircut.
It is also simply known as margin.
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