SunGard/PRMIA survey shows risk managers more sophisticated about collateral management

A new survey from SunGard and the Professional Risk Managers’ International Association, and conducted by NewOak, shows risk managers getting smarter about what they want from a collateral management technology platform. If risk managers have anything to say about it, the focus ought to be aggregating all collateral into one spot.

According to the survey, “Consolidation and aggregation of collateral across asset classes, business division and legal entities” was rated by 97% of respondents as either Very Important or Somewhat Important. Our interpretation of this is that the DTCC’s MTU is on the right path. As we noted in a July 21 post, “We maintain that the actual MTU won’t be seen in 2014, but we are hearing an interest from the market in the benefits it can provide.” The energy that we see now is a push towards shared services and away from each firm trying to build everything on their own.

Not too surprising given the risk audience, “an overwhelming 96.2% said that combining collateral management with an institution’s credit risk system was either Very Important (60.6%) or Somewhat Important (35.6%).” We’d want credit risk integrated with collateral management too if we were in a Risk department, but we’re not sure if these guys have enough pull to get this done before trading desks get their bells and whistles. Let’s call that a 2016 initiative.

The conclusion of the survey is that risk managers are upping their game: “one can detect a growing awareness of the need to improve the accuracy, timeliness and analytical sophistication of the information their exposure management systems are able to provide.” We appreciate the growing sophistication particularly in the US, where we’ve found risk managers to lag their European peers in thinking about collateral matters (case in point: Europe has had successful and large collateral management conferences because people go to them. The US has a few conferences that are poorly attended.)

As a side note, and relating to some recent work we did on cash vs. non-cash collateral, “additionally, it is interesting to note that cash and highly liquid assets (AAA rated), by an overwhelming majority (over 60%) are expected to experience the greatest growth across collateral types; this is in line with expectations and reflective of continued regulation in the financial markets.” So risk managers don’t like receiving ABS or junk bonds as collateral? We couldn’t imagine why not. The preference and expectation of the cash part is consistent with our findings as well. It won’t last forever though; just wait until interest rates rise.

No demographic or geographic breakdown was given for the survey, but we figure it was pretty much North American with some Europe thrown in for salt.

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