What is credit support and how is it used in the ISDA credit support documentation?


Published by a UUÂãÁÄÖ±²¥ Banking & Finance expert
Practice notes

What is credit support and how is it used in the ISDA credit support documentation?


Published by a UUÂãÁÄÖ±²¥ Banking & Finance expert

Practice notes
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What is credit support?

Credit support is a means of a party reducing its Credit risk on its Counterparty. Credit support arrangements are also known as 'Financial collateral arrangements', 'margin arrangements', 'collateralisation' and 'credit enhancement'.

One party (or both parties) will deliver, or otherwise make available, assets (known as collateral or margin) to the other party (the collateral taker) to secure or support its present or future obligations.

In the event the credit support provider defaults, the collateral taker can rely on the collateral provided by the defaulting party to secure any debt outstanding. Collateral may be provided by one party only (ie where one party is higher rated than the other, it may take collateral) or may be provided by both parties.

Collateral in this context refers to the assets that are provided under a credit support arrangement. These are usually:

  1. •

    cash, or

  2. •

    securities

Cash collateral

The vast majority of collateral is provided as cash, which for this purpose means rights to deposits.

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Jurisdiction(s):
United Kingdom and Ireland
Key definition:
ISDA definition
What does ISDA mean?

International Swaps and derivatives Association—the international trade association for privately negotiated derivative contracts.

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