BILATERAL COLLATERAL Meaning and
Definition
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Bilateral collateral refers to a type of collateral agreement in which both parties involved in a financial transaction provide assets or securities to secure the loan or credit. It involves a mutual agreement between the lender and the borrower to use their respective assets as collateral to mitigate the risks associated with lending or borrowing.
In a bilateral collateral arrangement, both parties provide collateral to protect themselves from potential losses in the event of default or non-payment by the borrower. This means that the lender can seize and sell the borrower's collateral if they fail to repay the loan, while the borrower can also seize and sell the lender's collateral if the lender fails to provide the agreed-upon credit facilities.
Bilateral collateral agreements are commonly used in various financial transactions, such as loans, credit facilities, or derivatives trading. The collateral provided can include various assets like real estate, stocks, bonds, or other valuable securities. The agreement typically outlines the terms and conditions regarding the value, quality, and transferability of the collateral, as well as the rights and obligations of both parties.
This type of collateral arrangement is also known as a mutual or two-sided collateral, as it involves reciprocal collateralization by both parties. Bilateral collateral helps establish trust and ensures a fair and balanced risk-sharing mechanism in financial transactions, providing a level of security for both the borrower and the lender.
Etymology of BILATERAL COLLATERAL
The word "bilateral" has its roots in Latin. It comes from the combination of two Latin words, "bi-" meaning "two" and "latus" meaning "side". Therefore, "bilateral" means "relating to two sides".
The word "collateral" also has Latin origins. It is derived from the Latin word "collaterālis", which consists of "col-" meaning "together" and "latus" meaning "side". So, "collateral" means "something that is situated or running side by side with something else".
When combined, "bilateral collateral" refers to something that is related to two sides and situated alongside or interconnected with something else.
