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A 2011 study revealed that internal fragmentation of global collateral management costs banks over €4 billion per year. This report examines eight building blocks for managing liquidity effectively.
Over the past decade, liquidity risk has overtaken market risk to become the top priority of many financial services executives. Members of the banking industry have responded to rising liquidity scrutiny and costs in several ways, including internal pricing mechanisms and forecasting, with mixed results.
Developed in association with The SEPA Consultancy, this report outlines eight building blocks that banks can use to manage intra-day liquidity and collateral effectively.
Download the full report [PDF, 253 KB]
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In the years leading up to the 1998 Russian Bond crisis, market risk was poorly understood and significantly under-resourced among banks. A decade later, Lehman Brothers’ experience showed that the industry had simply replaced one blind spot with another.
In a 2011 Gartner report, financial services CEOs and CIOs voted cash and liquidity conservation as their top concern for 2011 and 2012. The growing regulatory focus on liquidity has increased the cost of liquidity reserves for most banks, from less than 1 percent before 2008, to between 2 and 3 percent per year. As a result, weaker and smaller financial institutions are being forced out of the market.
A 2011 Accenture study, conducted in association with Clearstream, found that internal fragmentation of global collateral management costs banks more than €4 billion per year.
The eight most common challenges to effective collateral management are:
Banks can improve their performance in this area by maximizing liquidity to lower the cost and tenor of funding, and reducing or eliminating over-collateralization.
Accenture has identified eight building blocks to help banks move toward real-time, integrated intra-day liquidity and collateral management:
June 22, 2012
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