Evolution of collateral ‘management’ into collateral ‘optimisation’

Bilgehan Aydin

Journal of Securities Operations & Custody, 2016, vol. 8, issue 3, 259-271

Abstract: New regulations have forced an unpresented change in banking and financial industries, following the Lehman crisis. One of the key areas impacted by this is the collateral management function. There has been a fundamental change of focus on key drivers of collateral management since introduction of Master Agreement and Credit Support Annexes. Post Lehman crisis Market behaviour in assessing creditworthiness and pricing, and monitoring risk has changed significantly, leading to an increase of risk parameters banks need to monitor and price overtime, introducing more complexity to managing available resources. As a result, banks require a new type of capability and framework to assess, quantify, control and optimise scarce resources. Collateral management is no longer a reactive post trade exercise, rather a key building block within the trade cycle to ensure resources are priced and used as efficiently as possible. This paper examines the building blocks of margining and collateralisation of derivative transactions and trends evolved to mitigate systemic risk in capital markets, and the increased complexity faced when optimising the need to collateralise derivative and repurchase agreement (repo) business post new regulations.

Keywords: collateral optimisation; evolution of collateral management; the collateral challenge; XVA; emerging technology in collateral management; collateral squeeze; bilateral initial margin; derivative regulation (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:aza:jsoc00:y:2016:v:8:i:3:p:259-271

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