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

There’s no need for [[cross default]] in ''any'' [[master trading agreement]], actually — this is the [[JC]]’s considered view, about which you can read at length elsewhere — but the {{gmsla}} and {{repo}} are a particularly bad candidates for cross default because their transactions are by definition short term (in the case of {{repo}}) and on call (in the case of {{gmsla}}), so the “mischief” the [[cross default]] is designed to remedy — large credit exposure under transactions with long tenor and few regular cashflows — does not exist.

[[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 material payments will be regular [[interest]] payments, which might be as infrequent as quarterly, semi-annual or even annual. If the lender knows the borrower has defaulted on material [[indebtedness]] to another [[lender]], it will not want to wait nine months to see if there is a [[failure to pay]] on its own [[Loan|facility]]. Hence, a [[cross default]] right.