Hi,Lots of CSA agreements allow for multiple currencies to post. I wonder if banks in particular countries have preferences for particular currencies?I know that European banks mostly prefer to post EUR as collateral. I have heard that Japanese banks prefer to post JPY.What about Australia, UK, or USA?Have anybody seen some research papers about that?May be someone has personal view or knowledge about some banks preferences?People usually argue that counterparties post cheapest to deliver collateral. But I think it may differ per country.

It's still "cheapest-to-deliver" which is used. However, "cheapness" has to be defined in a way that takes into account the specific arrangements that a counterparty may have. I don't think there are any papers on this out there, as this is very idiosyncratic.

I have a strong feeling that cheapest-to-delivery is country specific. This what I try to prove or disapprove. I am looking for some empirical research or may be people can share the preferences of banks they know. I don't think this is a commercial secret.

QuoteOriginally posted by: AtosI have a strong feeling that cheapest-to-delivery is country specific. This what I try to prove or disapprove. I am looking for some empirical research or may be people can share the preferences of banks they know. I don't think this is a commercial secret.It's not country specific, in my experience. It's actually counterparty specific and I have seen a LOT of counterparties who treat this information as a commercial secret, in fact. A lot of people I talk to don't like disclosing their preferences and methodologies, because they're concerned that they will be picked off/arbed.

Agree with Martinghoul that this is a counterparty specific issue rather than country specific. I once saw some Deutche Bank stuff on this, maybe contact those people?

Agreed. I worked at a place where they were very long a specific currency, and hence keen that all collateral was posted in that currency.

QuoteOriginally posted by: DavidJNAgree with Martinghoul that this is a counterparty specific issue rather than country specific. I once saw some Deutche Bank stuff on this, maybe contact those people?I would love to. Can you give a name?QuoteOriginally posted by: rmaxAgreed. I worked at a place where they were very long a specific currency, and hence keen that all collateral was posted in that currency.This is a bit of my point. Banks are usually long their domestic currency.

QuoteOriginally posted by: AtosThis is a bit of my point. Banks are usually long their domestic currency.So what if it s Branch in another country? What is the domestic currency in this case?

QuoteOriginally posted by: rmaxSo what if it s Branch in another country? What is the domestic currency in this case?These are already details, which depend on the branch legal position and the policy of the bank. I am interested in big fishes in their own water. What are the preferences of Nomura, Mizuho, and Mitsubishi in Japan, what are the preferences of National, Commonwealth, and Westpac in Australia. The same for UK and USA.

To understand what is possible one needs to consider the relevant legal documentation. The set of available currencies for collateral movements is defined in legal terms in the Credit Support Annexes (CSAs) to the ISDA Master Agreements signed between counterparties. Once that documentation is in place the only guiding principle for collateral choice should be the cheapest-to-deliver notion described by Martinghoul. Any other kind of decision criterion is financially suboptimal.So, if you are positing some kind of systematic preference for the collateral movement currency for a specific counterparty, that preference would be have to show up in the CSA documentation. You would also have to believe in less than optimizing behaviour, unless of course the currency preference just happens to be the cheapest-to deliver currency. Seeing as the collateral currency choice is presumably available to both counterparties, a given counterparty can only control what currency they use to post collateral, they cannot choose the currency in which they receive collateral.

QuoteOriginally posted by: DavidJNTo understand what is possible one needs to consider the relevant legal documentation. The set of available currencies for collateral movements is defined in legal terms in the Credit Support Annexes (CSAs) to the ISDA Master Agreements signed between counterparties. Once that documentation is in place the only guiding principle for collateral choice should be the cheapest-to-deliver notion described by Martinghoul. Any other kind of decision criterion is financially suboptimal.So, if you are positing some kind of systematic preference for the collateral movement currency for a specific counterparty, that preference would be have to show up in the CSA documentation. You would also have to believe in less than optimizing behaviour, unless of course the currency preference just happens to be the cheapest-to deliver currency. Seeing as the collateral currency choice is presumably available to both counterparties, a given counterparty can only control what currency they use to post collateral, they cannot choose the currency in which they receive collateral.Thanks David for the reply.This is all true. In my perception, multi-currency CSA in western hemisphere are mostly USD+EUR+GBP based. But I am pretty sure that Australian banks negotiated also AUD in their CSAs as well as Japanese banks negotiated JPY. The question is what they actually currently prefer when they have a choice of 4 currencies?