Large Bank Examination Workshop February 2026

Collateral Management

• Collateral is most often in the form of pledged securities or loans • If pledged, these securities become encumbered and are not available for liquidity purposes • Security values are often given “haircuts” by lenders  Full value of security not available to offset risk • Collateral positions need to be marked-to-market (MTM)  Additional collateral might be required if value of current collateral declines by more than a pre-determined amount

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Independent Pricing • Procedures should ensure independent portfolio/desk pricing • For thinly traded illiquid securities, completely independent pricing may be difficult to obtain • Operational units may need to use prices provided by the front office/trader  Violation of best practices • Should compare front office/trader prices to counterparty

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