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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 “hedging” 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]]. (Often there is no more than a fag paper between a [[TTCA]] and an on-balance sheet [[netting]] arrangement)<ref>In many cases (e.g. the {{isdama}} a collateral arrangement will be delivered under a “{{isdaprov|transaction}}”, and so will explicitly be a master netting arrangement</ref>. | *'''[[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 “hedging” 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]]. (Often there is no more than a fag paper between a [[TTCA]] and an on-balance sheet [[netting]] arrangement)<ref>In many cases (e.g. the {{isdama}} a collateral arrangement will be delivered under a “{{isdaprov|transaction}}”, and so will explicitly be a master netting arrangement</ref>. | ||
*'''On-[[balance sheet]] {{tag|netting}}''': Legally enforceable [[close-out netting]] arrangements covering multiple transactions with offsetting [[mark-to-market]] values. | *'''On-[[balance sheet]] {{tag|netting}}''': Legally enforceable [[close-out netting]] arrangements covering multiple transactions with offsetting [[mark-to-market]] values. | ||
*'''{{tag|Guarantee}}s and [[credit derivative]]s''': {{tag| | *'''{{tag|Guarantee}}s and [[credit derivative]]s''': {{tag|Guarantee}}s provided by third parties (whose [[credit risk]] isn't materially correlated to the counterparty’s) or {{tag|credit derivative}} transactions. | ||
Now note a fundamental difference between legally enforceable {{tag|netting}} arrangements and [[Guarantees]]: In a netting arrangement the full value of the offsetting transaction fully and automatically cancels out the corresponding [[exposure]]. There are no contingencies. By contrast, collateral arrangements that don’t amount to enforceable [[netting]] arrangements, [[guarantees]] and [[CDS]] transactions ''all depend for their effectiveness on the solvency of the person providing the credit mitigation'' – if the credit support provider fails, so does the credit mitigation and the exposure remains. | Now note a fundamental difference between legally enforceable {{tag|netting}} arrangements and [[Guarantees]]: In a netting arrangement the full value of the offsetting transaction fully and automatically cancels out the corresponding [[exposure]]. There are no contingencies. By contrast, collateral arrangements that don’t amount to enforceable [[netting]] arrangements, [[guarantees]] and [[CDS]] transactions ''all depend for their effectiveness on the solvency of the person providing the credit mitigation'' – if the credit support provider fails, so does the credit mitigation and the exposure remains. | ||