The Tipping Point for Enterprise Collateral Management and Optimization

Regulatory changes are starting to bite. Dodd-Frank, EMIR and Basel III are all combining to fuel huge growth in the demand for high-quality assets for use as collateral and to maintain liquidity levels. To add to the complexity, we are experiencing a simultaneous drop in the availability of these in-demand assets. These things together have created the infamous collateral squeeze.

This creates significant pressure on the bottom line and banks now have to take radical measures in their collateral programs to remain competitive. Collateral management and optimization have clearly become top-of-mind this year.

Historically, firms would have various pools of collateral assets and simply use them as best they could within their organizational silos. Of course these pools of collateral could be sitting in different geographies, different instrument types or within different functions, making it difficult to understand the full inventory of available assets. When choosing what to pledge out, they may be operating using some rules around allocation but these often fall far short of true collateral optimization.

To minimize the costs of a collateral program, it is now imperative to see a single picture of firm-wide inventory, globally and in real time. Financial institutions then need to overlay this on to the global set of collateral requirements in as near real time as feasible.