Let say a bank enters an Interest rate swap with a counter-party, and this trade is collateralised.
I have heard about a specific term in such collateral agreement, wherein it states that the interest payment on such collateral (which is received or paid) is floored at zero.
What does it mean actually. If I receive the collateral and if there is some interest payment angle to it as per the contract, then I will always pay interest, right? Similarly if bank's counter-party receives the collateral then it will pay interest to the bank, right?
So interest payment will always be positive, is not it?
So what exactly it means to the statement that Interest on the collateral is floored at zero?
Any insight will be very helpful
Thanks for your time