Collateral management


Collateral management

You will not operate the same way

The last financial crisis, especially the sovereign debt crisis, highlighted the importance of credit risk mechanisms and more particularly of collateral management.

Executive Summary

From a buy-side perspective, we note that with inadequate and weak regulation, stakeholders might not recover their assets. For this reason, both client and regulatory considerations have prompted financial institutions to adopt more transparent market practices.

Collateral management consequently became the hub of the new regulations under implementation, which are substantially reshaping the way institutions operate in the market.

To fully understand these regulations and most importantly, their impact on the financial landscape, let us take a step back to examine how collateral is currently managed in the financial industry from an operational point of view. This could partially explain the major current concerns about collateral management and the fact that no financial institution will be able to survive without taking into account this major issue in the operational landscape and development plans for the following year.

Collateral management is currently viewed as a support function, managed by back-office teams. Their main activities are focused on valuation, margin calls, and providing Central Securities Depositories (CSDs) with a back-office and accounting perspective.

Furthermore, collateral management is a daily activity, performed once or several times a day, but not in real time, sometimes even not within an integrated system, which leads to a waste of time in the mobilisation of collateral and a lack of efficiency.

Finally, the investment decision by the front office is usually taken without any consideration of the collateral‘s impact.

Consequently, and for all these reasons, it is perhaps misleading—or at least limiting—to point out a lack of collateral without taking into account another dimension which is the limited access to collateral. In this context, market solutions coupled with an in-depth review of the current operational model of all COOs in the financial industry, could bring effective solutions.

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Inside magazine issue 8, April 2015

Inside is Deloitte’s quarterly magazine offering an exclusive insight into best practices, trends and opportunities faced by our clients across all industries.

Inside focuses on the main hot topics relevant for the market (Asset management, Banking, Insurance, Public sector, Healthcare, Private equity, Real estate, TMT, Manufacturing and consumer business, Transport and logistics).

PDF - 10.7mb
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