Risk Management for Securities Based Lending
Increased risks in securities based lending
After the outbreak of the subprime crisis many financial institutions painfully experienced the flaws in their risk management in securities based lending, if not with actual losses then with extraordinary operational expenses.
Frequently faced problems in securities based lending due to ill conceived risk management
- Accumulated risk concentration
- Losses due to diminished market liquidity
- Losses due to too aggressive Loan-to-Values
- Overestimation of diversification
- Unknown total exposure to certain underlyings and clients
- Misjudgement of client’s ability and willingness to honour margin-calls
- Mis-pricing of complex structured products
- Fee drops
- Reputational loss
An important wealth management service
The demand for securities based lending may be plunged currently, however collateralized lending will continue to grow as soon as investors risk appetite starts to awaken. It is an essential service for active investors and yields a highly attractive margin improvement for the bank. A state-of-the-art risk management enables to offer competitive but truly risk-adjusted conditions.
Comprehensive state-of-the-art risk management in securities based lending ensures:
- Consistent risk assessment and credit approval processes (e.g. consistent Loan-to-Value assignment)
- Integrated and transparent risk and exposure reporting
- Safeguard against business losses
- More profitable risk adjusted loan pricing
- Improved investment portfolio compliance/ suitability monitoring
- Reliable detection of reputational issues
Getting it done – quantitative and qualitative risk management by Deloitte
Deloitte offers state-of-the-art Expected Loss models to bring quantitative risk measurement to your securities based lending, thus ensuring consistent Loan-to-Values assignments throughout your business. Based on sound qualitative and quantitative methodologies, Deloitte offers support in structuring and optimizing your risk management for securities based lending through our profound knowledge and comprehensive expertise in the implementation of tailored end-to-end solutions.