Third-Party Issued Certificates of Deposit as Eligible Collateral under SCCL
Third-Party Issued Certificates of Deposit as Eligible Collateral under SCCL 1. Overview While less common than Treasury bonds, CDs from third-party banks are frequently accepted as high-quality collateral in structured loans and various credit support frameworks. Under the Single Counterparty Credit Limits rule in 12 CFR Part 252, Subpart H , the key question is whether a third-party issued CD qualifies as eligible collateral, and if so, how the exposure must be treated for limit and reporting purposes. This issue is not academic. If a CD qualifies as eligible collateral, it reduces exposure to the original counterparty but creates exposure to the issuing bank through mandatory risk shifting. If it does not qualify, the original exposure remains gross, potentially creating concentration limit pressure. For institutions subject to SCCL and FR 2590 reporting, this classification decision directly affects Schedule M-1 and Schedule G-5 reporting, counterparty aggregation, a...