Published on 22-Jun-2012
"With IBM Algo Collateral integrated into our enterprise-wide risk platform, we weathered the recent financial crisis while implementing an efficient collateral program and handling more transactions than we could have otherwise done." - Massimo Salerno, Head of Risk Services Center, Confederation of Spanish Savings Banks
Algorithmics Solutions, Business Analytics, Managing Risk
For over 80 years, the Spanish Confederation of Savings Banks (CECA) has played a dual role. CECA acts as both the National Association of Savings Banks, as well as a private credit institution providing competitive technological and financial products and services to savings banks and other financial institutions. As the Association of Savings Banks, CECA’s strategic goal is to strengthen the position of Spanish Savings Banks among the most important and highly valued institutions in the domestic and international financial systems.
In the wake of financial reform largely due to the credit and liquidity crisis, CECA — a credit institution and the National Association of Spanish Savings Banks — needed to rapidly adapt its systems and processes to support new collateral management requirements.
CECA chose IBM® Algo Collateral® because of its first-class functionality, short implementation time, and the software’s ability to integrate with the firm’s existing enterprise-wide risk platform. IBM Algo Collateral offers a comprehensive software solution that allows users to identify and manage the risks associated with collateral management. Using an automated data management system designed to minimize errors and operational risk, IBM Algo Collateral helps to proactively assess and manage risk across the enterprise.
By extending its use of IBM Algo Collateral, the firm was able to achieve its objectives with an industry-leading solution for all aspects of the collateral management workflow.
For over 80 years, the Spanish Confederation of Savings Banks (CECA) has played a dual role. CECA acts as both the National Association of Savings Banks, as well as a private credit institution providing competitive technological and financial products and services to savings banks and other financial institutions. As the Association of Savings Banks, CECA’s strategic goal is to strengthen the position of Spanish Savings Banks among the most important and highly valued institutions in the domestic and international financial systems. In this regard, CECA plays a significant role in Spain’s financial system.
The financial crisis in 2010 prompted Spain to consolidate 45 of its Savings Banks or “Cajas” into 34 much larger institutions, within 17 financial groups. As a result, CECA had to adapt its systems and processes in a short period of time to meet the new and sudden requirements of its members. Throughout the transition, CECA’s main objective was to provide leading collateral management services to support the new consolidated Savings Banks as market leaders in their field while standardizing processes and supporting its customers’ business.
Taking collateral management to the next level
Fortunately, CECA had already demonstrated the foresight to automate risk assessment and collateral management years before and, as such, had deployed a platform covering risk and collateral that incorporated IBM Algo Collateral. Through this platform, CECA reduced operational risk and holistically managed all aspects related to collateral management, including exposure assessment, counterparty reconciliation, risk mitigation, and settlements and accountancy.
As a service provider to Spanish financial institutions, CECA maintains a global and integrated perspective of market risk, credit risk, and collateral. With a commitment to minimizing risk, it applies best practices to member services, and uses standard applications that it can customize to suit its needs. To reduce the operational risk associated with risk and collateral, CECA has done everything possible to curtail the amount of human input required for its process management applications.
From a business management perspective, the importance of risk minimization was just one of CECA’s main concerns. The changes that were happening in the financial markets were deeply affecting the way business was being done, and having a solution that could keep pace with these expectations was crucial. Massimo Salerno, Head of CECA Risk Services Center, explains, “It was vital for us to work with a flexible, robust, and scalable collateral management solution so we could be responsive to our platform users at a very demanding time.”
Opting for a proven solution
Five years ago, CECA was selecting a collateral solution by issuing a Request for Information. The Confederation then evaluated different options amongst several vendors. Experts within the technical and risk departments, as well as the Shared Services Center then assessed the possible solutions with different vendor solutions and determined that IBM Algo Collateral best met CECA’s needs for extensibility and short deployment times.
Salerno goes on to explain CECA’s rationale, “IBM Algo Collateral best fit our requirements for integration within the enterprise-wide risk platform shared by several financial institutions. Equally important was our ability to outsource this collateral management service and run it quickly.”
While CECA certainly appreciated IBM Algo Collateral’s scalability, flexibility, and functionality, the association also placed tremendous value on the access to the global talent and expertise of IBM. Due to IBM’s experience with similar types of financial firms, CECA knew it was partnering with an international market leader.
Deploying a unique shared installation
As a first step, CECA extended its use of IBM Algo Collateral within the Global Collateral Service Center to support its own treasury department business as a credit institution. IBM Algo Collateral was configured so that its workflow integrated within the existing range of CECA’s applications comprising the platform, as well as interfacing with its settlement and accountancy systems.
CECA went live with an automated workflow in IBM Algo Collateral that covered everything from setting up a contract to exposure assessment, margin calls, dispute resolution, margin settlement, interest calculation, accounting, and risk mitigation. It then rolled out the solution to some of the users of its enterprise-wide risk platform shared by several financial institutions. The IBM collateral solution was then integrated with the back office, risk, and settlement systems being utilized.
For CECA, accomplishing its goals required implementing a unique shared installation. This requirement for a communal setup entailed providing the users with access to the CECA enterprise-wide risk management platform for all activities related to the treasury department, covering the front, middle, and back office, including risk management. Through this shared global platform, the users access only their corresponding data, as well as best practices – all without assuming any implementation risk. Just as important, CECA can manage multiple clients simultaneously without exposing the products and portfolios used by other entities.
Automating day-to-day processes
Beyond CECA, several financial institutions take advantage of the collateral management services that are powered by IBM Algo Collateral and delivered by the Global Collateral Management Center. All day-to-day processes related to collateral management are automatically handled by the solution; CECA clients only need to independently manage accountancy and settlement.
Using the workflow, CECA can, for example, handle the calculation and create the file to be imported for accountancy. Alternatively, it can manage risk around its counterparties. With the significant consequences of the financial crises, the need for systematic collateral processes is stronger than ever.
According to Salerno, “With IBM Algo Collateral at the core, we’re able to standardize our processes. We’re also able to provide both CECA and other financial institutions with a solution that covers all aspects of collateral management’s operational workflow.”
As a further benefit, CECA has been able to take advantage of workflow automation. For instance, it can extract the margins held and send it to the risk tool to automatically calculate counterparty risk within a unique platform. As another example, when CECA agrees with a counterparty about a margin to be called or received and records the amounts in the system, IBM Algo Collateral automatically submits the amount to CECA’s payment system.
At the end of every day, the information related to collateral held and interest calculations are then automatically sent from the software to CECA’s back office and accountancy systems. As a further advantage, CECA can even handle disputes and collateral booking automatically. According to Salerno, “All of this automation saves us time and helps us cover as much risk as possible.”
Adapting to market changes
The implementation of IBM Algo Collateral afforded CECA and other financial institutions with the ability to address the rapid market reforms very efficiently. Using IBM Algo Collateral, CECA adapted its original collateral management service to accommodate new requirements for full asset class coverage, including derivatives, security lending, and bond repos.
Moreover, by implementing a comprehensive collateral program, CECA was able to optimize its counterparty risk management, and reduce exposure and capital. The firm was also able to increase the range of products and counterparties for the treasury department.
“With IBM Algo Collateral integrated into our enterprise-wide risk platform, we weathered the recent financial crisis while implementing an efficient collateral program and handling more transactions than we could have otherwise done. Now, we can focus on providing our collateral management services to more financial entities, and helping them adopt established best practices in the management of collateral and risk,” concludes Salerno.
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