What is Margin Requirements?

Question

What is Meant by Margin Requirements? Or, What is the Definition of Margin Requirements?

Answer 1

Margin Requirement : It refers to minimum down payment that the borrowers are required to make as a percentage of their total borrowing from the Commercial Banks. Margin Requirement is raised to correct situations of excess demand. Higher margin requirement acts as a disincentive to borrow.

Accordingly, Demand for credit is reduced. Implying a cut in AD, as required to correct excess demand. On the other hand, when deficient demand is to be corrected, margin requirement is lowered. This induces borrowers to raise more credit. Implying a rise in AD, as desired to correct deficient demand.