Bank/Credit Institution

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One of ISDA’s vaunted netting categories.

Bank/Credit Institution: A legal entity, which may be organized as a corporation, partnership or in some other form, that conducts commercial banking activities, that is, whose core business typically involves (a) taking deposits from private individuals and/or corporate entities and (b) making loans to private individual and/or corporate borrowers. This type of entity is sometimes referred to as a “commercial bank” or, if its business also includes investment banking and trading activities, a “universal bank”. (If the entity only conducts investment banking and trading activities, then it falls within the “Investment Firm/Broker Dealer” category below.) This type of entity is referred to as a “credit institution” in European Community (EC) legislation. This category may include specialised types of bank, such as a mortgage savings bank (provided that the relevant entity accepts deposits and makes loans), or such an entity may be considered in the local jurisdiction to constitute a separate category of legal entity (as in the case of a building society in the United Kingdom (UK).

Integrated broker-dealers in; standalone broker-dealers out

If your bank includes a broker-dealer, or investment bank, within the same legal entity as a deposit taking institution — like UBS AG or Barclays Bank PLC does, for example — you are a Bank/Credit Institution. If you are a specialised broker-dealer or investment bank without its own built-in deposit-taking bank — like Goldman Sachs International — you are an Investment Firm/Broker-Dealer.

Say what? European Community?

Details freaks will have immediately spotted a reference to the long-since defunct, dear old, European Community, which for practical purposes was subsumed into the European Union as early as 1993, but finally formally dissolved in the Treaty of Lisbon in 2009, at about which time ISDA was finalising the most recent version of its counterparty types.

Now the JC is not just snippy a criticiser. Mainly, but not always. So, as part of the JC's unquenchable yen to improve community standards, his representatives have written to ISDA urging it urgently reconsider the appropriateness of this definition, in light of the sad demise of the EC.

See also

• ISDA netting categories
• close-out netting
• ISDA Anatomy