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The new study “Collateral optimisation – the value chain of collateral: Liquidity, cost and capital perspectives” by Clearstream and Elton-Pickford finds that European banks could reduce their Basel III equity capital requirements by up to 20 percent – an equivalent of EUR 40 billion – through efficient collateral optimisation.
According to the Basel III and Dodd Frank regulations, banks are required to increase their levels of equity to strengthen their solvency in case of crisis. The assets are weighted as a function of their risk to assess the impact on the balance sheet and to adjust the necessary quantity of equity. Banks are therefore striving to hold as much high quality liquid assets as possible to reduce the amount of required equity...
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