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| A fundamental distinction in the capital markets between lending and financing: Lending involves the outright assumption of [[credit risk]] against a borrower; financing involves the outright assumption of [[market risk]] against an asset.
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| In a [[financing]] there is always a second loss risk exposure to the borrower — so ''residual'' credit risk — but this remains fully contingent on asset failure, and that in turn is a failure of ''market'' risk management rather than lending per se.
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| I would draw a distinction between bilateral transformations of asset values between parties on one hand — I give you cash in return for an asset, with the expectation that we will reverse this exchange at a later date — and outright transfers of capital on the other: outright investments, whether that be via debt or equity capital injection.
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| ====Examples of lending====
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| {{gb|Deposit taking<li> | |
| Traditional lending<li>
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| Uncovered bond investments<li>
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| Equity investments}}
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| ====Examples of financing====
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| {{gb|Repo <li>
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| Securities lending <li>
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| Swaps<li>
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| Securitisation <li>
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| Prime brokerage <li>
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| Project finance}}
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| On this view most capital markets activity (repos, securities lending, derivatives, securitisation and structured financing) is fundamentally ''financing'' — while the traditional banking book (corporate lending, consumer credit) represents true capital allocation. Notably initial public offerings — also a form of capital injection — tend to be managed and underwritten by banks, but placed into the market.
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| Note that bonds and stocks themselves, as they are “securitised” can in turn be financed. This is what the prime broker does.
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| {{sa}}
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| {{gb|[[Financing]]<li>[[A swap as a loan]]<li>[[Bilaterality]]<[[Credit risk]]<li>[[Market risk]]}}{{nld}}
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