Collateral

From Open Risk Manual

Definition

Collateral. An asset offered as security, pledged as an inducement to another party, to lend money, extend credit, or provision securities.

Context

The property or other assets that a borrower or a third party offers a lender to secure a loan or extension of credit. If the borrower stops making the promised repayments and/or interest and finance charges, the lender can take possession of the collateral to recoup its losses by means of sale.

The legal perfection of collateral is jurisdictionally specific and takes many forms. Collateral is often subject to Collateral Management procedures, e.g. collateral in a warehouse. Collateral has synonyms in the form of Security or a security interest

Lenders or other counterparties are typically accepting collateral as a form to Risk Mitigation rather than due to intrinsic interest in the use of the asset. Hence the topic of Collateral Valuation, which allows the comparison of the collateral's monetary value against the liabilities of the borrower is quite significant.

Collateral Types

Collateral types include marketable properties, such as real estate, chattel, inventories, and financial institution deposits.

See Also

  • Collateral is also terminology used to describe underlying assets in Securitisation

See Also

  • Barron's Dictionary of Business and Economics Terms, Fifth Edition, 2012

Disclaimer

This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with or correctly interprets the concepts covered by the FIBO ontology.

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