Collateral

RECENT NEWS
Mondo Visione  Feb 4  Comment 
RTS Clearing Center has reviewed the list of securities that can be accepted as collateral for trades executed on FORTS, the derivatives market of RTS Stock Exchange, and RTS Standard.
Business Standard  Jan 12  Comment 
Only listed bonds which are rated AA and above and have original maturity of at least one year can be used collateral in the repo market, RBI said in a notification.
BusinessWeek  Dec 24  Comment 
Latvia, which doesn’t produce any vehicles of its own, has become a net exporter of cars as banks in the bailout dependent Baltic state liquidate vehicles that were pledged as collateral by insolvent borrowers.
Bloomberg  Nov 20  Comment 
(Update1) The European Central Bank tightened the rules for the collateral it will accept for loans as part of efforts to restore the “proper functioning” of markets.
Business Standard  Nov 15  Comment 
In a major setback to cash-strapped infrastructure company Maytas Properties, promoted by former Satyam Computer founder B Ramalinga Rajus family, a local court has passed an order barring it from using land as collateral for loans.
Mondo Visione  Nov 3  Comment 
As of October 26, 2009, the Derivatives Clearinghouse's new electronic collateral management system has been operational. The new version provides more agility in the management of collateral for transactions carried out at the Brazilian Exchange....
Wall Street Journal  Oct 29  Comment 
AIG has recouped billions of dollars from banks, as credit-default-swap trades have reversed in its favor.
Sydney Morning Herald  Oct 27  Comment 
When Russian billionaire Alexander Lebedev’s OAO National Reserve Bank seized collateral offered against a loan from a cash-strapped borrower, a health quarantine was slapped on the security: 40,450 pigs.



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Collateral is an asset or assets offered by a borrower in order to procure a loan. Should the borrower default on his payment(s), the lender would take possession of the collateral, which may then be sold to recoup the lender's losses.

Technically, collateral could be any asset, though typically it takes the form of personal property, investment securities, or real estate, the values of which can be readily determined.

Examples

  • A woman takes out a mortgage to pay for her home. As collateral, she offers the home itself. Should she default on the loan, the lender (typically a bank) would take possession of the home. The bank may then sell the property to recoup its losses.
  • A man needs a cash loan to pay for several large, immediate expenses. As collateral, he offers the lender his car. Should he default on the loan the lender would take possession of the car, which he or she may sell to recoup losses.

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