Part II Commercial Banking, 11 Netting, Collateral, and Credit Risk Mitigation
- Credit risk — Netting — Credit derivatives
11.01 Credit risk mitigation is the portmanteau term which covers the various different ways in which an exposure can be reduced for regulatory reporting purposes. Formally there are three ways of doing this: netting against an existing exposure owed by the bank to the borrower; taking (certain types of) collateral; and obtaining cover from third parties in the form of guarantees or similar contracts. It may be noted that there are a very large number of techniques which are used in the real world by banks to improve their position as lenders which are simply...