Cash Is King – Taking Control Over Cash Collateral

Introduction

Cash is used as a form of collateral in a wide variety of financial transactions as it is readily quantifiable and easily realized upon by secured creditors. In secured lending transactions, a debtor's cash may form part of the lender's general security or may be deposited with a financial institution to support certain contingent obligations (such as outstanding letters of credit). Cash collateral also plays a significant role in supporting certain over-the-counter ("OTC") derivative transactions. Indeed, proposed changes to the regulatory margin requirements for OTC derivative transactions are expected to make cash the more desirable form of collateral and, in certain cases, the only usable form of collateral for these transactions.