Bank’s perspective on regulatory-driven changes to collateral management

Lukasz Prorokowski

Journal of Financial Regulation and Compliance, 2014, vol. 22, issue 2, 128-146

Abstract: Purpose - – The aim of this paper is to discuss the impact of regulatory-driven changes to the collateral management landscape, indicating operational and technological challenges faced by global investment banks while complying with the new regulatory framework. As it transpires, collateral management strategies need to be revised to find optimal solutions for the regulatory-shaped landscape. Furthermore, set against the regulatory background, this paper attempts to provide some insights into the future risks and shocks to collateral management. Design/methodology/approach - – This paper recognizes the dearth of up-to-date studies on current issues with collateral management and overnight indexed swap (OIS) discounting. Therefore, to introduce new theoretical avenues, this paper is based on an exploratory, qualitative approach to analyse the regulatory-driven collateral management. Findings - – The increased use of collateral, with a sharp focus on its quality, liquidity and eligibility for central clearing, requires a new approach to collateral management and discounting methods. At this point, banks (especially those with agency businesses) should develop an enterprise-wide view of collateral by having a central data repository, which allows access to information about the transactions conducted with all counterparties. Originality/value - – Analysing the regulatory-driven (Basel III; Dodd-Frank; EMIR) changes to collateral management, this paper adopts banks’ perspectives on the new regulations in collateral management. The paper contributes to the widespread, albeit complex, discussion on how banks adapt to the rapidly changing environment in collateral management and risk operations.

Keywords: Basel III; Banks; Collateral management; EMIR; OIS discounting; Central clearing; Dodd-Frank; Operational risks; OTC transactions (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:v:22:y:2014:i:2:p:128-146

DOI: 10.1108/JFRC-07-2013-0025

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