Collateral Management: more or less risk?
Jacques Sevat discussed the practical and legal aspects of global collateral management: collateral management to reduce the credit risks a global bank such as ING Bank runs every day.
- Jacques Sevat
- 22 November 2013
Collateral management is the continuous process of providing and taking collateral as protection against a possible payment default of the counterparty. Collateral management departments of banks such as ING Bank assess the credit exposures of their financial transactions on a daily basis. The teams calculate the market value of outstanding financial transactions, such as derivatives contracts and repurchase agreements, and decide whether additional cash or securities have to be received from their counterparty or transferred to this party. Sevat’s explanation of the practical and the legal aspects of this process was not only crystal clear but also thought provoking.
Lehman Brothers and Vestia
Over the past few years dramatic events shook the financial markets. Sevat showed how collateral management performed a pivotal function in these occurrences. For example, the collapse of investment bank Lehman Brothers in 2008 was provoked by calls for additional collateral by its counterparties. Once bankrupt, failures in the management of counterparty risks and a great lack of transparency in the derivatives market and the repo market came to light. The Dutch housing corporation Vestia also failed to comply with its obligations to transfer additional collateral. Vestia almost went bankrupt in 2011.
Sevat said that since then, tightened regulations require parties to make their financial positions more transparent, have tightened supervision of financial transactions and set more stringent requirements for ratings by rating agencies. The coming years, collateral management will continue to play an important role in the financial markets. After his lecture, there was ample opportunity to ask questions. A lively discussion took place which continued during the reception.
Jacques Sevat worked several years for a trading company in chemicals, after which he ended up in the banking sector and held various positions at Postbank. After the merger of NMB and Postbank he was responsible for risk management for financial institutions and analysis and supervision of securitization, acquisition finance and insurance corporate finance. From 1997, he worked three years at the department Debt Capital markets of ING Barings in London. He was responsible for securitisation/orgination. Sevat has been involved in setting up collateral management activities within ING since 2002. Several years later he was appointed Global Head Collateral Management. Sevat is responsible for collateral management of all ING Group entities since 2008.
Hazelhoff Centre for Financial Law
Previous Hazelhoff Guest Lectures were given by Jan Kees de Jager, former Dutch Finance Minister, Rutger Schimmelpenninck and Ben Knüppe, liquidators in the bankruptcy of DSB Bank, and Nout Wellink, former chairman of De Nederlansche Bank (Dutch central bank). The Hazelhoff Guest Lectures are organized by The Hazelhoff Centre for Financial Law provides academic education and performs research in the field of financial law.