The financial services sector could save more than 4 billion annually in collateral management costs by addressing operational inefficiencies, according to Collateral Management: Unlocking the Potential in Collateral, a survey by Accenture and Clearstream.
The research, which was based on publicly available information, together with interviews with 31 executives at global banks accounting for about 20% of worldwide banking assets, found that decentralized operations and unaligned business objectives are limiting banks ability to manage collateral efficiently. As a result, banks are unable to maximize liquidity, keep down financing costs and are forced to maintain excess collateral buffers.
Collateral management has become a critical industry issue as regulators set more rigorous capital and liquidity standards, and banks confront new cost and growth challenges in the wake of the global financial crisis. Efficient collateral management can free up liquidity for banks, enabling them to offer a greater range of products and services and more readily meet these new regulatory requirements. Accenture estimates the total value of cash and securities used as collateral in the financial system globally to be more than 12 trillion.
In todays environment of regulators looking to safeguard the financial services sector by addressing more rigorous capital and liquidity standards through regulation, combined with reduced appetite for unsecured credit lending, maximizing the value of collateral has never been more important, Stefan Lepp, member of the executive board and head of Global Securities Financing at Clearstream, says. This requires global banks to be able to see and manage all of their collateral holdings centrallyacross business lines and geographies. It also requires comprehensive data and the ability to exchange information quickly and efficiently with counterparties. A key strategy to address the new wave of financial regulations is to reduce internal fragmentation and free up collateral.
Owen Jelf, managing director at Accenture Core Trading and Settlement Services, adds: The majority of our survey respondents agreed that streamlining internal processes and governance and enhancing the visibility of collateral are value-creation opportunities. Our research makes clear that not only can the banking industry save 4 billion annually through better collateral management, but it has a precious opportunity to increase revenues and profitability by getting this function right.
According to the survey, a significant number of banks have focused on increasing collateral management efficiencies following the recent financial crisis. More than one-third of respondents said their companies have reduced internal collateral management inefficiencies over the past three years; nearly one-quarter said they had reduced external collateral management costs.
(CM)