How can you develop and implement collateral management policies that align with your organization's values?

1 Understand your objectives

Before you design your collateral management policies, you need to understand what your organization wants to achieve with them. Do you want to minimize your exposure to counterparty default, or do you want to maximize your returns from lending or borrowing collateral? Do you want to comply with the best practices and standards in the industry, or do you want to differentiate yourself from your competitors? Do you want to enhance your reputation and trustworthiness, or do you want to protect your confidentiality and privacy? Your objectives will guide your decisions on what types of collateral to accept, how to value them, how to monitor them, and how to handle disputes.

2 Define your criteria

Once you have your objectives clear, you need to define your criteria for selecting and managing collateral. These criteria should reflect your organization's values, such as quality, transparency, efficiency, fairness, and sustainability. For example, you may want to only accept collateral that meets certain ratings, standards, or certifications. You may want to disclose your collateral policies and procedures to your counterparties and regulators. You may want to use automated and centralized systems to process and track your collateral transactions. You may want to apply consistent and equitable rules for margin calls, haircuts, and substitutions. You may want to avoid collateral that has negative environmental, social, or governance impacts.

3 Communicate your policies

After you have defined your criteria, you need to communicate your collateral management policies to your internal and external stakeholders. This will help you align your expectations, avoid misunderstandings, and resolve issues. You should document your policies in clear and concise language, and update them regularly to reflect changes in market conditions, regulations, or best practices. You should also educate your staff on the rationale, benefits, and risks of your policies, and provide them with the tools and training to implement them effectively. You should also inform your counterparties, regulators, and auditors of your policies, and seek their feedback and input.

4 Monitor your performance

Finally, you need to monitor your performance and outcomes of your collateral management policies. This will help you measure your progress, identify gaps, and make improvements. You should establish key performance indicators (KPIs) and metrics that align with your objectives and values, such as collateral coverage ratio, collateral utilization rate, collateral optimization rate, collateral dispute resolution rate, and collateral policy compliance rate. You should also collect and analyze data on your collateral portfolio, transactions, and operations, and use them to generate insights and recommendations. You should also conduct regular reviews and audits of your policies, and benchmark them against industry standards and best practices.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?