Q+A: Collaterals Constant Evolution

Michael Albanese, global head of collateral management at JPMorgan Chase, talks about how collateral management is changing and gaining acceptance in new quarters.

Global Finance: Why are corporate clients seeking collateral management services?

Michael Albanese: Given the importance of collateral as a risk management tool, institutions increasingly look to a trusted agent to help them optimize their collateral inventory and deploy it in a capital-efficient and cost-effective way. The heightened use of collateral and its greater complexity have driven demand for a partner with significant expertise in managing collateral and margin obligations across a variety of structures.

GF: What specific features do they ask for?

Albanese: Institutions are looking for intraday reporting, access to local and global markets, the ability to substitute assets for other eligible assets (especially as demand for high-quality collateral increases), and complex and customizable collateral optimization capabilities.

GF: What are the biggest challenges for collateral managers these days?

Albanese: For the last eight years, a heightened focus on collateral has meant constant evolution for collateral agents. More transactions require collateral, regulatory change continues to take effect, and the focus on intraday access to information and sophisticated allocation and optimization tools available across markets means that collateral agents need to continually innovate.

GF: How are collateral managers innovating?

Albanese: A successful collateral manager needs to provide the counterparties with an operating model and infrastructure that is flexible and supports innovation. These include deploying collateral globally, regardless of where it’s held; adapting tri-party structures to create opportunities for other types of transactions beyond traditional repo and securities lending; and tailoring the tri-party model to work in onshore markets such as Japan and Korea, where the use of collateral and independence of collateral agents are increasingly valued.