Inefficiencies in Collateral Management Cost the Financial Sector More than €4 Billion Annually, According to Accenture/Clearstream Survey
NEW YORK and LUXEMBOURG; Sept. 14, 2011 – The financial services sector could save more than €4 billion annually in collateral management costs by addressing operational inefficiencies, according to a survey by Accenture (NYSE: ACN) and Clearstream.
The research, which was based on publicly available information and interviews with 31 executives at 16 global banks, 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. These inefficiencies cost the financial sector more than €4 billion annually, according to the research.
Banks use collateral mainly for secured funding from markets and central banks. It is a key enabler of a variety of services and products, including traditional securities financing and the facilitation of trading and risk mitigation. 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 today’s 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,” said Stefan Lepp, member of the Executive Board and head of Global Securities Financing at Clearstream. “This requires global banks to be able to see and manage all of their collateral holdings centrally – across 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.”
“The majority of our survey respondents agreed that streamlining internal processes and governance and enhancing the visibility of collateral are value-creation opportunities,” said Owen Jelf, managing director, Accenture Core Trading and Settlement Services. “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.
According to the survey, banks’ key collateral management challenges include:
- An incomplete view of all collateral and an inability to manage holdings centrally
- Suboptimal internal governance leading to a misalignment of objectives
- Inadequate internal transfer-pricing mechanisms
- A lack of optimization engines or the ability to deploy them effectively
- Inability to perform inventory projections
- Excessive staff costs as a result of process complexity
The highest potential cost savings, according to survey respondents, can be achieved by:
- Reducing the number of collateral pools or silos
- Implementing a single IT solution that provides a complete overview of all assets across all business entities
- Adopting optimization algorithms
- Improving internal transfer-pricing mechanisms
The Accenture/Clearstream report, “Collateral Management: Unlocking the Potential in Collateral”, is available upon request.
Accenture Core Trading and Settlement Services, a business service within Accenture’s Financial Services operating group, provides both buy-side and sell-side firms a full suite of offerings including consulting, technology and business process outsourcing to assist in the delivery of high-performing trading capabilities across all asset classes.
Clearstream is a leading service provider in liquidity and collateral management services in Europe with more than 20 years of experience. The company’s monthly average collateral management outstanding hit a new record peak of €645 billion in August 2011.
The Accenture/Clearstream study is based upon an analysis of publicly available industry data on collateral management as well as one-on-one interviews with 31 executives at 16 global banking institutions, which were conducted in March 2011. The banks interviewed manage nearly 20 percent of total global banking assets.
As an international central securities depository (ICSD) headquartered in Luxembourg, Clearstream provides the post-trade infrastructure for the Eurobond market and services for all major asset classes with access to more than 52 domestic markets worldwide. Clearstream’s customers comprise approximately 2,500 financial institutions in more than 110 countries. Its services include the issuance, settlement and custody of securities, as well as investment fund services and global securities financing. With almost €11 trillion in assets under custody, Clearstream is one of the world’s largest settlement and custody firms for domestic and international securities. Clearstream also functions as a central securities depository (CSD) based in Frankfurt delivering the post-trade infrastructure for the German securities industry with access to a growing number of markets in Europe. Further information: www.clearstream.com
Accenture is a global management consulting, technology services and outsourcing company, with more than 223,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.
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