Template:Cross default in securities financing agreements: Difference between revisions

*Large credit exposure

*Long term exposure with no break rights

[[Cross default]] is designed for transactions with ''all'' of these features. A standard SFT, has ''none'' of these features.

[[Cross default]], remember, is a banking concept, designed to protect [[Lender|lenders]] who have unsecured [[credit exposure]] to [[Borrower|borrowers]] under fixed rate [[Loan|loans]] where the only payments will be period [[interest]] payments, which might be only quarterly, half-yearly or even yearly. For your average [[credit officer]], a year between scheduled payments is ''a long time between drinks''. If {{sex|she}} knows the [[borrower]] has defaulted in a big way to some ''other'' [[lender]] — some ''random'' — the self-respecting credit officer will not want to wait nine months to for a [[failure to pay]] on its own [[Loan|facility]] before hitting DEFCON 5. she will want do do it straight away. Ideally, even before that random creditor has.  

Hence, she requires a [[cross default]] right. If ''random guy'' can pull you down, ''I'' can pull you down.

All the talk of borrowers and lenders in [[Securities financing transaction - SFTR Provision|securities financing transactions]] makes a fellow giddy. But remember: [[SFTR|SFTs]] are ''not'' contracts of [[indebtedness]]. Even though they’re ''called'' “[[loan]]s”, they are not actually, you know, ''[[loan]]s''. {{gmslaprov|Lender}}s aren’t — legally or economically — [[lender|lenders]]<ref>If anything, a fully collateralised lender, with a 5% haircut, is actually, net, a ''borrower''.</ref>. Thus, there is [[cross default]] in any standard [[SFT - SFTR Provision|SFT]] agreements. This ''was not a mistake''. It was deliberate. You don’t need one.