> What happens if the banks don't meet their collateral requirements? That's equivalent to a default on the contract. It'll end up in a legal settlement whereb

> What happens if the banks don't meet their collateral requirements? That's equivalent to a default on the contract. It'll end up in a legal settlement whereby the currently posted collateral, if any, will be used in the settlement. The general idea with collateral is to ensure that, if one or other counterparty defaults, the net loss for the non-defaulter is kept relatively small. BTW the regulation change that this article refers to is really just a change in how certain collateral balances are calculated. It's a pain for the banks as there are lots of regulators who don't really agree and keep changing their minds. Also, you now have to "show your working" more or you get hit with a punitive charge. It's not conceptually hard but requires a lot of coordination both inside the banks and between the banks and regulators.