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Paper examines strategic importance of collateral management

According to a paper written by BNY Mellon and London-based consultancy The Field Effect, collateral management will increasingly become a strategic priority for firms.

Collateral Management: A Review of Market Issues looks at the changes taking place in the financial markets since the global financial crisis and how this is having a “profound effect on how collateral is used and managed”.

The report states that firms that fail to address a range of 'fundamental' strategic questions around changing collateral management requirements will find themselves at a disadvantage when it comes to supporting their future funding and investment needs. However, it says that many large financial intermediaries and asset owners are struggling to address several challenges, including the following:

  • compliance with new regulations governing cleared and non-cleared over-the-counter (OTC) derivatives;
  • for the buy-side, choosing partners who can support complex requirements for margining and collateral mobilisation;
  • for banks, meeting complex interlocking collateral and capital regulations, while offering customers collateral services at a viable price point;
  • the ability of custodians to provide customers with a cost-effective collateral management service with integrated tri-party capability.

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