The requirement to post liquid assets when a position moves against you, turning an accounting loss into an immediate cash need.
Collateral is the asset posted to a counterparty to secure a position, and a margin call is the demand to top it up once the position has moved adversely since the last valuation. The mechanism exists to prevent the silent build-up of counterparty exposure, and it works, at the price of an effect solvency models capture poorly: it converts a change in value into a day-to-day liquidity requirement, where insurance reasons over long horizons. Two features make it dangerous. First procyclicality, since calls arrive exactly when markets are falling and selling is dearest, pushing every counterparty the same way at the same time. Second opacity, since one counterparty may deal with several intermediaries that each see only part of the position, so none prices its own risk correctly. For an insurer the useful question is therefore not how much collateral has already been posted but how much an adverse shock would demand within days, and which assets could actually be mobilized to provide it.
In March 2021, the failure of the family office Archegos Capital Management to meet margin calls triggered the disorderly unwinding of positions held through several banks, among them Credit Suisse, which reported a loss of around 5.5 billion dollars on that single exposure.
margin call, collatéral, appel de marge, variation margin