To meet these heightened standards it is critical that firms develop improved processes and infrastructure – especially firms with significant capital markets operations for which a higher regulatory bar has been established. More proactively, superior collateral management infrastructure has a real upside: it can enhance collateral optimization processes, which in turn could improve firms’ day-to-day operational efficiency and increase profitability.
We argue in this paper for robust collateral management systems and practices, not only as part of a strong risk management program, but also as a part of day-to-day business operations effectiveness and resolution planning. We propose a conceptual framework for a best-in-class enterprise solution that combines transparency into collateral availability and usage, central oversight, and a robust IT infrastructure. Collateral management can no longer be treated as a mundane “back office” function: it needs to be elevated to a strategic, enterprise-wide risk practice that delivers required management information on close to a real-time basis. This shift requires a clear vision of the target state and management focus in order to implement. It may also mean significant resource investment at no less a level than is afforded to front office systems.
