Collateral

RECENT NEWS
Mondo Visione  May 27  Comment 
NCC Clearing Bank, part of Moscow Exchange Group, plans to introduce collateral for stress as an additional layer of its central counterparty (CCP) safeguard structure. This move will facilitate the further development of risk management and...
Mondo Visione  May 26  Comment 
The OFR released a working paper today entitled, “A Map of Collateral Uses and Flows.” The paper says collateral is exchanged among market participants to support financial activities, including secured funding, securities lending, securities...
Mondo Visione  May 3  Comment 
The European Banking Authority (EBA) issued today an Opinion to the European Commission supporting its proposed amendment to the draft Regulatory Technical Standards (RTS) on additional collateral outflows with regard to the historical look-back...
Financial Times  Apr 27  Comment 
Swiss interdealer broker sets sights on European repo market
Mondo Visione  Apr 14  Comment 
The International Swaps and Derivatives Association, Inc. (ISDA) has today published the first in a series of documents to help market participants comply with new margining requirements for non-cleared derivatives. The new document – the...
Mondo Visione  Apr 13  Comment 
The Association for Financial Markets in Europe (AFME), FIA, the International Capital Market Association (ICMA), the International Swaps and Derivatives Association, Inc. (ISDA) and the International Securities Lending Association (ISLA) have...
New York Times  Apr 8  Comment 
An alternative financing arrangement will let students pledge some of their future income for monetary assistance now.
Mondo Visione  Mar 30  Comment 
A leading European investment management company based in the UK has renewed its long-standing contract with Lombard Risk for COLLINE, a real-time cross product collateral solution, as well as its front office trading tool OBERON. These solutions...




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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.

Other terms in common use in the market are"margin", "margin asset" and "margin agreement" and similar terms using "credit support" instead of "collateral" or "margin," collateral", "collateral asset" and"collateral agreement." [1]

When a lender offers a loan against collateral offered by the borrower, the lender is said to take a security interest in the collateral. [2]

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.
  • In Uruguay, no private bank would accept cattle as collateral for a loan. By contrast, in Kansas, cattle are considered the best collateral for a loan.

14c., "accompanying," also "descended from the same stock," "side by side, "together" "parallel, along the side of" 16c., "colleague, associate." Meaning "thing given as security" is from 1832, Amer.Eng., from plrase collateral security (1720). [3]

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