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| Banks may use [[credit risk mitigation technique]]s (jauntily known as “[[CRM technique]]s” or even “[[CRM tool|tool]]s”) to reduce the impact on their capital calculations of counterparty [[credit exposure]] in their trading businesses. | | Banks may use [[credit risk mitigation technique]]s (jauntily known as “[[CRM technique]]s” or even “[[CRM tool|tool]]s”) to reduce the impact on their capital calculations of counterparty [[credit exposure]] in their trading businesses. |
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| [[CRM technique]]s are broken down as follows:
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| *'''[[Title transfer collateral arrangement|Collateralised transactions]]''': A bank has a [[credit exposure]] which it hedges<ref>This is what it says, and I suppose it is true, even though this is a curious way of describing it</ref> [[in whole or in part]] by {{csaprov|collateral}} posted by a counterparty or a [[credit support provider]].
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| *'''On-[[balance sheet]] {{tag|netting}}''': Legally enforceable [[close-out netting]] arrangements covering multiple transactions with offsetting [[mark-to-market]] values.
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| *'''{{tag|Guarantee}}s and [[credit derivative]]s''': {{tag|Guarantees}} provided by third parties (whose [[credit risk]] isn't materially correlated to the counterparty’s) or {{tag|credit derivative}} transactions.
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| {{Box|
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| ===An Important point ===
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| Note the difference between [[CRM technique|techniques]] which mitigate a credit risk that you nonetheless have — as above — and those which negate the [[credit exposure]] in the first place. So, ''par example'', a [[title-transfer collateral arrangement]] whereby a bank transfers outright {{tag|collateral}} to a counterparty may, as part of a valid netting agreement, mitigate that collateral but will leave you with an exposure to any [[excess collateral]] or [[haircut]]; however transfer under a [[pledged collateral arrangement]] — at least [[to the exent]] that you don't surrender legal title to the collateral at all — will leave you with no counterparty {{tag|credit exposure}} at all to the haircut or excess, seeing as it is yours, and if the counterparty goes [[bust]], you will be entitled to have it returned in full.
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| ===Bedtime reading=== | | ===Bedtime reading=== |