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Limiting collateral damage 

October 3, 2014
Frances Faulds, Banking Technology

The regulatory focus on moving to exchange trading and higher capital charges for over the counter (OTC) instruments is increasing the demands for collateral worldwide. It is a demand that is also expected to become greater. It has been forecast that $2 trillion of new collateral, globally, would be required to meet the needs of cleared derivatives in the central counterparties (CCPs). However, in the US, where mandatory clearing has already started for all market participants, there has been some mobilisation of collateral but not to the extent that was initially expected, writes Frances Faulds.

Furthermore, Saheed Awan, global head of collateral services and securities financing products at Euroclear, says the forecasts of a collateral shortage that have been predicted during the past three years have not materialised. Numerous studies have shown that there is no shortage of collateral, he says; the issue is, and continues to be, that financial institutions operate in such a way that collateral is siloed not only internally but also geographically.

Read more: Banking Technology

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