FSA begins investigation into collateral management

The UK Financial Services Authority (FSA) has begun an investigation into how large investment banks manage their collateral, fearing they may not be ready for a sudden market downturn.

The regulator will ask banks about the quality of their systems for assessing collateral, check that collateral is correctly valued and appropriate haircuts are imposed, and ensure that the correlation between collateral and the value of the underlying exposure to the counterparty, in normal and in stressed

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