Definition ∞ Cross-firm collateral involves assets pledged as security for financial obligations across different legal entities or divisions within a larger organization. This practice permits the use of a broader pool of assets to secure various liabilities. It can enhance liquidity and reduce the overall cost of borrowing.
Context ∞ In the digital asset lending and borrowing landscape, the concept of cross-firm collateral presents both opportunities and risks. While it could optimize capital utilization for large crypto institutions, it also introduces complexities in asset segregation and insolvency proceedings. Regulators are scrutinizing how such arrangements might increase interconnectedness and systemic risk within the nascent digital asset financial system.
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