When a bank acts as an intermediary on an interest rate swap and guarantees payment in the event that one of the parties to the swap defaults, the bank is engaging in an off-balance sheet commitment.

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When a bank guarantees payment in the event of default on an interest rate swap, it is engaging in an off-balance sheet commitment because the guarantee does not appear on the bank's balance sheet as an asset or liability until the guarantee is called upon.

When a Bank Acts as an Intermediary on an Interest