July 3rd, 2012
Collateral Management historically has been viewed as a support function. Now it has come under increased scrutiny in part because of the failure of several banks. New regulations require banks to demonstrate control of their own and their clients’ assets, and to strengthen their balance sheets by maintaining higher levels of capital adequacy.
Most banks do not have sophisticated collateral management systems, however, and those systems are most likely to be integrated across the enterprise. Existing collateral management is often manually intensive, time-consuming, error prone and not scalable.
We often see the same collateral challenges facing most banks:
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Inadequate reference data quality – especially integrating Legal Agreements and Supporting Documents into the margin and collateral systems
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Managing collateral in entrenched “business silos” (prime services, equity finance, Repos, and Treasury), which frustrates the enterprise requirements
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Inadequate Technology –few banks have their systems integrated to provide the tools required by collateral managers and traders for the new regulations
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Risk functions require more transparency into collateral holdings to improve the calculation of exposures
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New regulatory reporting is anticipated to increase costs and require additional resources
One of the ways Capital Markets Advisors can help clients address the above challenges is by providing a Collateral Management operations model.
This model would align people, processes, and technology, informed by: goals and objective; products and services; organization and well-framed controls. Collateral data would be scalable and made available on time to the people and systems that require it at the counter-parties. In addition, we would establish benchmarks to gauge systems performance, capacity and weaknesses.
