European banks could reduce their Basel III equity capital
requirements by up to 20%, or around €40bn ($55bn),
through efficient collateral optimisation, according to a
Clearstream-sponsored Elton-Pickford study.
Collateral Optimisation, The value chain of collateral:
liquidity, cost and capital perspectives finds
that collateral optimisation is best achieved through
a "collateral value chain", which makes it possible to select
securities, to ensure their availability and mobility as well
as the robustness of the liquidation process.
"The Elton-Pickford study confirms the already widely
discussed savings potential through optimal collateral
management; but the concept of building a 'collateral value
chain' is new," said Stefan Lepp, executive board member at
Banks are still deciding how to meet required levels of
equity under Dodd-Frank and Basel III to strengthen their
solvency in case of crisis. The study describes the flows in
collateral liquidity as "truly chaotic", reflecting strategic
choices still being considered by internal experts.
It attributed this disorder to several factors including
regulation acting as a development driver, repricing of credit
risk, impact of monetary policies such as quantitative easing,
and quasi-deflation or "low-flation".
The survey, which consisted of a qualitative and
quantitative analysis of interviews iwth
22 institutions including banks in Q1 2014, recommended
optimisation as a source of savings, potential profitability
and a primary lever that could be used to meet ever increasing
capital equity and liquidity needs.
"Whatever the business model, optimisation of collateral
management should take a structured approach and implement a
collateral value chain, aimed at fulfilling the following three
objectives: prudential liquidity management, regulatory
compliance and profitability," the study said.
"A centralised view of collateral, associated with local
liquidation rules seems to be the best management model to face
this new fragmented environment."