The collateral management practices of central banks: the case for modernisation


The reduction in interbank funding since the financial crisis means central banks now supply banks with liquidity on a much wider scale than they did in the past. As a result, efficient collateral management is now much more important for central banks than it was before the crisis - it is now a complex, cross-border and continuous activity.

This Clearstream-commissioned survey with Dominic Hobson from COO Connect examines whether central banks have adapted their collateral management practices to these new circumstances. The survey found that central banks are often conservative when it comes to cross-border collateral management operations. It seems that most central banks have yet to exploit the full potential of triparty services to help them keep pace with their greater role in collateral markets.

For example, triparty services can help central banks to

  • maintain flexibility in collateral eligibility criteria;
  • calculate and adjust haircuts;
  • value collateral intraday;
  • make and meet frequent margin calls;
  • monitor concentration limits;
  • manage collateral across currencies as well as borders;
  • broaden both the range of counterparties and the asset classes they accept.