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Risk managing loan collateral at the Bank of England

Author

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  • Alphandary, Alice

    (Bank of England)

Abstract

The Bank stands ready to lend to its counterparties against eligible collateral, which includes a wide range of securities and portfolios of loans that can be adequately risk-managed through a combination of prudent eligibility criteria, valuations and haircuts. When accepting portfolios of loans as collateral, the Bank undertakes an extensive due diligence process to understand and mitigate the legal and financial risks associated with these loans and the level of uncertainty surrounding these risks. Residential mortgages now represent the majority of collateral pre-positioned and the Bank’s Risk Management Division uses loan-level data as an input to its credit stress and cash-flow models to calculate the stressed value of these loans in extreme, but plausible, scenarios.

Suggested Citation

  • Alphandary, Alice, 2014. "Risk managing loan collateral at the Bank of England," Bank of England Quarterly Bulletin, Bank of England, vol. 54(2), pages 190-201.
    • Handle: RePEc:boe:qbullt:0143
    as

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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/risk-managing-loan-collateral-at-the-boe.pdf?la=en&hash=199B50C8856509F7D2EE92D05BD6CE5B297251B4
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    References listed on IDEAS

    as
    1. Button, Richard & Pezzini, Silvia & Rossiter, Neil, 2010. "Understanding the price of new lending to households," Bank of England Quarterly Bulletin, Bank of England, vol. 50(3), pages 172-182.
    2. Farag, Marc & Harland , Damian & Nixon, Dan, 2013. "Bank capital and liquidity," Bank of England Quarterly Bulletin, Bank of England, vol. 53(3), pages 201-215.
    3. Bailey, Andrew & Breeden, Sarah & Stevens, Gregory, 2012. "The Prudential Regulation Authority," Bank of England Quarterly Bulletin, Bank of England, vol. 52(4), pages 354-362.
    4. Churm, Rohan & Radia, Amar & Leake, Jeremy & Srinivasan, Sylaja & Whisker, Rishard, 2012. "The Funding for Lending Scheme," Bank of England Quarterly Bulletin, Bank of England, vol. 52(4), pages 306-320.
    5. Breeden, Sarah & Whisker, Richard, 2010. "Collateral risk management at the Bank of England," Bank of England Quarterly Bulletin, Bank of England, vol. 50(2), pages 94-103.
    Full references (including those not matched with items on IDEAS)

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