Fan of the mismatch – Experts debate whether equities as collateral will ever be acceptable
28th September 2017
Tracey Adams of Lombard Risk examines how as beneficial owners face pressure to accept lower quality assets as collateral for their HQLA, should they be accepting equities, or are their concerns about quality warranted?
As high-quality collateral becomes scarcer, many institutions are concerned by the cost of high-quality liquid assets (HQLA). While some beneficial owners are willing to accept lower quality collateral, others prepare to compete on the quality of collateral they agree to accept. In an environment where collateral scarcity and mobility has become a fundamental concern, clarity and ease of use rank higher—even over cost. Cost will always be an important factor but the values of collateral must remain. This means collateral must be tangible, high-quality, liquid and easy to value. This is critical in maintaining the core principles of Basel III and the US Dodd-Frank Act
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