82,459
edits
Cross default: Difference between revisions
→Then the lawyers and credit officers start fiddling with things
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) |
||
| Line 45: | Line 45: | ||
===Then the [[lawyer|lawyers]] and [[credit officer|credit officers]] start fiddling with things=== | ===Then the [[lawyer|lawyers]] and [[credit officer|credit officers]] start fiddling with things=== | ||
Cross default is a bad enough idea in a [[derivatives]] [[master agreement]] in the first place, before [[risk managers]] start having a go at it. Misguided things they can do include the following: | Cross default is a bad enough idea in a [[derivatives]] [[master agreement]] in the first place, before [[risk managers]] start having a go at it. Misguided things they can do include the following: | ||
*Widening it to include default under agreements which aren’t in the nature of indebtedness | *Widening it to include default under agreements which aren’t in the nature of [[indebtedness]]: for example, [[derivatives]], or even “any payment obligation”. | ||
:*This is problematic because of the accretive nature of the threshold: A single technical or operational failure may mean one is technically in default on payments which, if aggregated, could quickly exceed even a large threshold (especially in a heavily traded derivative master agreement). | |||
*Not, in the case of banks, excluding [[deposit|retail deposits]], where operational failure or even governmental action (like a moratorium or currency controls) could lead to technical default on a large amount of indebtedness. (Bank deposits are a form of indebtedness, and will almost certainly be a significant source of indebtedness for any trading bank). | |||
*Adding in [[grace period]]s or other preconditions, excuses, permission to skip PE class and so on, before a party is entitled to invoke a [[cross default]]; | *Adding in [[grace period]]s or other preconditions, excuses, permission to skip PE class and so on, before a party is entitled to invoke a [[cross default]]; | ||
*Arguing the toss about [[threshold amount]]s (should it be shareholders funds or cash? or both? lower or higher of? Honestly it is so tedious). | *Arguing the toss about [[threshold amount]]s (should it be shareholders funds or cash? or both? lower or higher of? Is my threshold higher than yours? Is it too big? Is it too small? Does my {{isdaprov|Threshold Amount}} look big in this? Honestly it is so tedious). | ||
==Introduction== | ==Introduction== | ||