APAC Collateral Management Forum 2011

The recent turmoil in the credit markets has highlighted significant errors and shortfalls in collateral management operations. These errors have translated into material actual losses creating a risk management exposure but also a savings opportunity. Both, the buy side and the sell side, are revisiting their risk infrastructures, many of which were designed to avoid losses, not necessarily improve operations. At the top of the list of improvements is the ability to better assess risk drivers, to calculate the amount of portfolio at risk, and to improve overall collateral management.

The value of collateral use has increased considerably in recent years, as financial institutions have come to recognize the benefits collateral programs deliver. With their ability to enable greater volumes of business, while mitigating credit losses, collateral programs can sustain and enhance a competitive advantage for banks, insurers, and fund managers.

As these programs have gained in popularity, they have also become more complex. Collateral managers work to strict timeframes and operational controls to produce margin calls, reconcile portfolios, and maximize the use of their collateral inventory. Regulatory bodies have stepped in to address key issues around collateral programs, including expanding the types of collateral accepted for trade, defining a framework for the use of collateral between counterparties.Banks want to reduce their credit risk and, at the same time, offer additional loans to their customers.

Current highly competitive and hard on regulations situation on the market makes the efficiency of collateral management increasingly important. Risky experiences with credit failures over the past years made banks’ think about the importance of collateral management. Volumes of trades as well as types of trades are becoming more complex that ever, and the need of sophisticated and end-to-end collateral management is inevitable.