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Collateral Resilience Deep Dive
by Tonic

Strengthening the resilience of financial markets is a core priority for financial regulators worldwide​

Enhancing Resilience

Enhancing the resilience of the financial markets is an ongoing key objective of financial regulators globally. ​

Recent episodes of market stress, including the March 2020 market turmoil, the Archegos failure in March 2021, the 2022 turmoil in certain commodities markets, and the September 2022 issues experienced by many LDI funds, underscore the importance of margin and collateral calls to financial stability.

Key Market Stress Events

1. A series of major macroeconomic events in recent years have directly challenged collateral teams and reshaped the environment in which they operate.

2. COVID-19 pandemic and the Ukraine conflict drove sustained market volatility, pushing margin call volumes to levels up to 25 times higher than normal.

3. The UK crisis resulted in falling gilt prices, driving large margin calls and a surge in substitution requests as firms tried to manage liquidity and infrastructure vulnerabilities

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Regulatory Roadmap

1. From the market dislocations of March 2020 to the recent LDI crisis, regulators continue to signal a strong emphasis on financial system resilience.

2. Via exercises like the BOE System-Wide Exploratory scenario, the FSB and national authorities are driving the resilience agenda

3. In response, firms must strengthen their capabilities in collateral transformation, optimization strategies, and margin analytics to better prepare for, adapt to, and respond effectively to future market disruptions

Tonic | Resilience

Building a resilient collateral business is complex, requiring interaction among many stakeholders.

• Regulators are emphasizing the need for institutions to demonstrate an ability to endure sustained market stress, with the aim of reducing systemic risk and broader market disruption.

• Firms are being urged to identify both operational and financial vulnerabilities and to take proactive steps to address any gaps.

• Building resilient  collateral operating models will require a heavily coordinated effort across multiple departments and business lines

All parts of the financial markets are subject to resilience focus

• While there is no one-size-fits-all solution, every aspect of the collateral ecosystem is under scrutiny to ensure greater resilience. All constituents of the ecosystem must be able to withstand sudden, sharp, and severe shocks to global financial markets

• Repo market resilience is central to supporting core markets in stress, but capacity can be limited. Firms need to plan for adequate liquidity or alternative sources of financing to mitigate the reduction in repo market activity are

Resilience Pain Points

• Common collateral resilience pain points that Tonic has seen firms experience in times of stress are outlined below

• As such, enhancing resilience will require a heavily coordinated effort across multiple departments and business lines

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Building a resilient collateral operating model

• Collateral Management Resilience refers to the robustness and adaptability of a firm’s collateral management framework, particularly in the face of financial stress, market volatility, operational disruptions, or regulatory changes

• Combining infrastructure, liquidity and digitisation capabilities ensures firms are able to withstand and adapt in stress and adverse conditions

Tonic - Resilience Health Check

• The Tonic Resilience Health Check draws on our deep expertise in collateral management and financial resilience to deliver a high-impact Collateral Resilience Assessment tailored to our clients' needs.

• The Heath Check delivers targeted, actionable recommendations to address any identified weaknesses and strengthen overall resilience.

• The outcome: enhanced long-term protection of the collateral function, underpinned by greater operational agility and scalable liquidity management—positioning clients to respond with confidence in both normal and stressed market conditions

How Can Tonic Help?

At Tonic, we help institutions build more resilient, future-ready collateral operations, so they can stay ahead in volatile markets.
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Get in touch below if you would like an informal chat about how our service proposals can help your firm accelerate a high-quality resilience implementation.

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