The document discusses collateral management and its key functions. Collateral management focuses on credit risk mitigation and reducing loss given default through improved recovery rates. Efficient collateralization can lower expected losses and allow reductions in economic and regulatory capital. However, collateralization also introduces legal and operational risks. Traditionally located within operations or credit, collateral management interfaces with various functions like sales, risk, and treasury. The selection of collateral assets and accurate exposure measurement are critical factors for collateral management success.

1. COLLATERAL MANAGEMENT
Product Market Strategy Sales & Relationship Counterpart Rating Credit & Limit Management
Treasury Pricing & Valuation Policy
Default Management Optimum Collateralization Model Measurement Methods
Legal Risk Operational Risk
Regulatory Compliance
Risk Monitoring & Control Capital Management Stress Testing
(FCCM)

2. COLLATERAL MANAGEMENT
Collateral Management Framework
Sales Credit Treasury
Product
Market Risk
Data
Exposure Management Management
Exposure Reporting
Valuation Trade
Matching Netting
Market Capture
Credit Risk
Data
Collateral Collateral Management
Valuation
Contract Collateral
Legal Setup
Risk Criteria
Allocation
Liquidity Regulatory
Agreement Risk Reporting
Cash Settlement
Margin Call
Management Process
Client Operational
Data Reconciliation Interest & Risk
Inventory
Process Charges
Client
Operations Reporting
Position Legal Risk
Processing Accounting Settlement

3. COLLATERAL MANAGEMENT
Sales
Legal
Compliance Treasury
Collateral
Function
Interaction
Capital
Risk
Operations
The relationship and interaction of the Collateral Management Function with
associate and dependent functions defines its efficiency and success

4. COLLATERAL MANAGEMENT
Key Factors impacting the collateral function
Collateralization primarily focuses on credit risk mitigation and operates through improving
the recovery rate in a post-default situation, and decreasing the loss given default.
Efficient collateralization leads to lower expected losses in a collateralized portfolio, and
allows both economic and regulatory capital provisions to be reduced. This element can
significantly improve deal pricing, especially where firms explicitly or implicitly charge for
credit risk.
Collateralization introduces legal and operational risks in the process, often overlooked.
Traditionally located within operations or credit and interfaces with sales, risk, treasury, etc.
The selection of collateral assets is a critical factor in the overall success of a collateral
agreement.
Exposure measurement is key to its implementation - Current Credit Exposure / MTM, and
Potential Future Credit Exposure.
Integration drivers - improve cross-product risk management, and aggregate collateral
assets to maximise funding capacity
Collateral Clearing Bank – the future of collateralization, settlement and disputes.