Question

Why is the expected loss to a bank from a default on a swap with a counterparty less than the expected loss from the default on a loan to the counterparty when the loan and swap have the same principal? Assume that there are no other derivatives transactions between the bank and the counterparty, that the swap is cleared bilaterally, and that no collateral is provided by the counterparty in the case of either the swap or the loan.

   Why is the expected loss to a bank from a default on a swap with a counterparty less than the expected loss from the default on a loan to the counterparty when the loan and swap have the same principal? Assume that there are no other derivatives transactions between the bank and the counterparty, that the swap is cleared bilaterally, and that no collateral is provided by the counterparty in the case of either the swap or the loan. 
 
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Options, Futures, and Other Derivatives
Options, Futures, and Other Derivatives
John C. Hull 10th Edition
Chapter 7, Problem 15 ↓

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A loan involves a bank providing a principal amount to a counterparty, which the counterparty is obligated to repay with interest over time. A swap, on the other hand, is a derivative contract where two parties exchange cash flows based on a notional principal  Show more…

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Why is the expected loss to a bank from a default on a swap with a counterparty less than the expected loss from the default on a loan to the counterparty when the loan and swap have the same principal? Assume that there are no other derivatives transactions between the bank and the counterparty, that the swap is cleared bilaterally, and that no collateral is provided by the counterparty in the case of either the swap or the loan.
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