Global trends and challenges of collateral management

Baranova Victoria
Doctor of Economics, Professor, Head of Financial Management and Stock Market Department, Odessa National Economic University, Ukraine, e-mail: vgbaranova58@gmail.com, ORCID ID: https://orcid.org/0000-0002-1724-957X

Bilous Kostiantyn
PhD student, Financial Management and Stock Market Department of, Odessa National Economic University, Ukraine, e-mail: kbilous@kse.org.ua, ORCID ID: https://orcid.org/0000-0002-2891-3640

Cite this article:

Baranova, V., Bilous, K. (2023). Global trends and challenges of collateral management [Hlobalni problemy ta perspektyvy zastavnoho menedzhmentu], Socio-economic research bulletin, Vìsnik socìal’no-ekonomìčnih doslìdžen’ (ISSN 2313-4569), Odessa National Economic University, Odessa, No. 1-2 (84-85), pp. 51–65.

Abstract

The article investigates the current state and prospects for developing collateral management worldwide. It is studies the evolving role of collateral management across traditional banking, fintech, and cryptocurrency sectors and its impact during the COVID-19 pandemic. The research explores the utilization of collateral in derivatives trading, peer-to-peer lending platforms, and the DeFi industry and how COVID-19 has influenced collateral management practices. We employ comprehensive analysis of secondary data and current trends, focusing on the shift towards automation, fintech use, and the unique challenges of collateral management in the cryptocurrency sector. The findings reveal that collateral management is crucial in reducing counterparty risk and enhancing financial stability. The COVID-19 pandemic intensified the demand for high-quality liquid assets as collateral, leading to liquidity problems and increased market interventions by central banks. Additionally, the pandemic emphasized the need for robust risk management and diversified collateral pools and triggered regulatory changes in margin requirements. This paper provides original insights into the benefits and challenges of automation collateral management system implementation, highlighting the improved risk management, operational efficiency, and regulatory compliance it can offer. It also examines the role of fintech, specifically distributed ledger technology, artificial intelligence, machine learning, and data analytics, in enhancing collateral management practices. It also underscores the need for regulatory considerations and data security. The study concludes by discussing collateral management in the emerging crypto-economy. The use of digital assets as collateral, the role of DeFi platforms, and implications for risk management and regulatory compliance are explored. Finally, it emphasizes the need for secure storage solutions for digital assets and the development of suitable risk management frameworks and regulatory guidelines. The authors propose that as financial systems continue to evolve, the successful implementation and regulation of collateral management practices, especially with fintech integration and within the crypto-economy, will be pivotal for financial market stability and resilience.

Keywords

collateral management; collateral; risk management; fintech; cryptoeconomy; decentralized finance; counterparty risk; credit risk.

JEL classification:G150; G180; G210; G230; O310; DOI:https://doi.org/10.33987/vsed.1-2(84-85).2023.51-65

UD classification: 336.764.23

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