Cross Collateralisation
From Open Risk Manual
Definition
Cross Collateralisation is the use of Collateral to collateralize multiple outstanding loans within a group of Related Counterparties
Cross collateralisation forms a collection of crossed loans that is secured by collateral owned by the related borrowing entities, thereby supporting the aggregate loan amount. Ceteris paribus, a pool portfolio of assets will exhibit less volatility and hence provide better Credit Risk Mitigation.
Examples
Cross collateralisation is found, e.g. in Securitisation transactions, in particular involving real estate assets.
Issues and Challenges
- The legal enforceability of cross collateralisation, in particular if the legal entities involved span different jurisdictions
See Also
References
