登录查看更多内容

How can collateral management reduce your funding costs?

由人工智能和领英社区提供技术支持

Collateral management is the process of exchanging assets or securities to secure a financial transaction, such as a loan, a derivative contract, or a repo agreement. By posting collateral, you can reduce the credit risk and the funding costs of your transactions, as well as access more liquidity and leverage. In this article, you will learn how collateral management can help you optimize your funding costs and what are the key factors to consider when choosing and managing your collateral.

在这篇协作文章中查找专家回答

由社区从 3 条内容中精选。了解更多

1 Collateral types and benefits

There are different types of collateral that you can use to secure your transactions, depending on the nature, size, and duration of the deal. The most common types are cash, government bonds, corporate bonds, equities, and commodities. Each type of collateral has different benefits and drawbacks, such as liquidity, availability, volatility, haircut, and regulatory treatment. The choice of collateral depends on your risk appetite, funding needs, and market conditions.

添加您的观点

2 Collateral optimization

Collateral optimization is the process of selecting and allocating the most efficient and cost-effective collateral for your transactions. It involves comparing the costs and benefits of different collateral types, taking into account factors such as margin requirements, interest rates, currency exposure, liquidity premium, and opportunity cost. By optimizing your collateral, you can reduce your funding costs, increase your return on assets, and improve your capital and liquidity ratios.

添加您的观点

3 Collateral transformation

Collateral transformation is the process of exchanging low-quality or illiquid collateral for high-quality or liquid collateral, usually through a third party such as a custodian, a clearing house, or a repo dealer. It allows you to access more funding sources and meet the regulatory and contractual requirements of your transactions. However, collateral transformation also involves additional costs and risks, such as fees, counterparty risk, reinvestment risk, and operational risk. You should weigh the benefits and costs of collateral transformation carefully before engaging in it.

添加您的观点

4 Collateral valuation

Collateral valuation is the process of determining the market value and the risk-adjusted value of your collateral. It involves applying discounts or haircuts to the market value of your collateral to reflect its liquidity, volatility, credit quality, and currency mismatch. The haircuts are determined by the agreement between you and your counterparty, or by the rules of the clearing house or the regulator. By valuing your collateral accurately, you can avoid over-collateralization or under-collateralization, which can affect your funding costs and risk exposure.

添加您的观点

Riya Pawar

xBarclays | Data Security Consultant (CSO) | Risk Mitigation, Enterprise Risk Management | Expert in Data Protection Strategies & Data Masking Practices | Governance & Compliance Specialist
举报内容
Collateral valuation encompasses the application of discounts, often referred to as 'haircuts,' to reflect the collateral's liquidity, volatility, credit quality, & potential currency mismatch. For instance, in over-the-counter (OTC) derivatives, valuing collateral involves adjusting its market value to account for fluctuation & risks The determination of these haircuts often stems from agreements between counterparties or adheres to guidelines set by clearing houses or regulators. Accurate valuation is crucial as it ensures that there is neither over-collateralization nor under-collateralization. Over-collateralization ties up excessive assets, affecting funding costs, while under-collateralization exposes firms to increased risk exposure

已翻译

赞

5 Collateral reconciliation

Collateral reconciliation is the process of verifying and agreeing on the value and the eligibility of your collateral with your counterparties. It involves comparing the collateral positions, valuations, and movements across different platforms, systems, and reports. It also involves resolving any discrepancies or disputes that may arise due to data errors, market fluctuations, or contractual changes. By reconciling your collateral regularly, you can reduce the operational risk and the funding risk of your transactions, as well as comply with the regulatory and industry standards.

添加您的观点

Riya Pawar

xBarclays | Data Security Consultant (CSO) | Risk Mitigation, Enterprise Risk Management | Expert in Data Protection Strategies & Data Masking Practices | Governance & Compliance Specialist
举报内容
Example, in the context of over-the-counter (OTC) trading, reconciling collateral involves comparing reported positions & valuations with those held by different parties, ensuring accuracy & consistency in the agreement terms. Frequent reconciliation aids in minimizing operational & funding risks in transactions while ensuring compliance with standards & regulations, such as those outlined by Basel Committee on Banking Supervision (BCBS) & the International Organization of Securities Commissions (IOSCO). For instance, the adoption of the Margin Requirements for Non-Centrally Cleared Derivatives by various regulatory bodies emphasizes the significance of accurate & efficient collateral reconciliation to manage counterparty risk effectively.

已翻译

赞

6 Collateral reporting

Collateral reporting is the process of collecting, analyzing, and communicating the information related to your collateral activities and positions. It involves generating and reviewing reports on various aspects of your collateral management, such as collateral inventory, allocation, optimization, transformation, valuation, reconciliation, and exposure. It also involves reporting to your internal and external stakeholders, such as senior management, auditors, regulators, and counterparties. By reporting your collateral effectively, you can enhance your transparency, accountability, and performance measurement.

添加您的观点

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

Riya Pawar

xBarclays | Data Security Consultant (CSO) | Risk Mitigation, Enterprise Risk Management | Expert in Data Protection Strategies & Data Masking Practices | Governance & Compliance Specialist
举报内容
In addition to the essential components of collateral management, several other terms & factors play a significant role in understanding & implementing effective strategies Understanding terms such as Credit Support Annex (CSA), over-the-counter (OTC) trading, base currency, initial margin, variation margin, margin call, mark to market, independent amount, threshold amount, minimum transfer amount, & haircut is crucial. Collateral management, once seen primarily as a risk management & regulatory compliance effort, is now recognized as a strategic initiative for investment firms. Strategic & efficient collateral management not only mitigates risk but also ensures more cost-effective utilization of available resources.

已翻译

赞

Risk Management

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

How can collateral management reduce your funding costs?

1

2

3

4

5

6

7

1 Collateral types and benefits

2 Collateral optimization

3 Collateral transformation

4 Collateral valuation

5 Collateral reconciliation

6 Collateral reporting

7 Here’s what else to consider

Risk Management

给文章评分

感谢您的反馈

更多Risk Management相关文章

更多相关阅读内容

How can collateral management reduce your funding costs?

1

2

3

4

5

6

7

1 Collateral types and benefits

2 Collateral optimization

3 Collateral transformation

4 Collateral valuation

5 Collateral reconciliation

6 Collateral reporting

7 Here’s what else to consider

Risk Management

给文章评分

感谢您的反馈

查看其他技能