We use unique data provided by U.S.-affiliated securities dealers to study the use of collateral in bilateral repurchase and securities lending agreements. Market participants’ use of collateral differs substantially across asset classes: For U.S. Treasury securities transactions, we find that the distribution of haircuts is predicted in part by the price distribution of the collateral, whereas the same is not true for equities transactions. Further, while most of the equities transactions in our sample are each associated with a single haircut, most of the transactions involving U.S. Treasury securities are each associated with more than one haircut. We relate these findings to the theory of collateral as an enforcement mechanism and show that this theory alone is not enough to explain the use of collateral in this market. We then turn to models of adverse selection that predict a negative relationship between haircuts and interest rates, based on the use of collateral as a screening mechanism. We find this negative relationship for those trades in which the securities dealers are receiving U.S. Treasury securities and delivering cash.