Blockchain set to transform collateral lending
March 2, 2018

The potential of blockchain to deliver tangible business value has once again been demonstrated, this time in the area of collateral lending, claims ING Bank. In a ground-breaking transaction, it and Credit Suisse have this week carried out the first-ever live securities trade on a blockchain platform.

ING says the two banks successfully swapped EUR 25 million worth of high quality liquid assets using the collateral lending application of fintech HQLAx on R3's Corda distributed ledger platform. The technology driving the transaction was developed by ING's blockchain /distributed ledger technology (DLT) team.

ING notes that banks need high quality liquid assets to meet tougher liquidity requirements under Basel III. These are assets that can easily and immediately be converted into cash without losing their value. However, holding too many lowers their return, so efficient trading allows banks to optimize their balance sheets.

This latest transaction shows yet again how blockchain can make financial services faster, easier and more efficient. But its broader impact could be even more meaningful, says ING's Ivar Wiersma, head of Wholesale Banking Innovation. It is making the financial industry more efficient and resilient by creating a more transparent marketplace for exchanging digital assets.

"What's really different is that it gives the regulator the opportunity to get direct access to the ledger and see the entire digital history of the transaction, from where it originated to its ownership and attributes," he explains. "In the over-the-counter (OTC) environment, which is traditionally not that transparent, it could make the entire financial system more resilient."

This is the first transaction on Corda using HQLAx digital collateral records. It involved high quality liquid assets, but the concept of assets being tokenized and therefore digitized and traded is applicable to other assets classes as well, he adds. Potentially it could also revolutionize other parts of the capital markets, says Wiersma.

He points out that many of the blockchain applications that are being developed on Corda are close to real-life production, which is a sign of the good progress made in the platform's development and a clear benefit of the strong partnership with R3. In January, ING used its Easy Trading Connect platform to complete the first blockchain trade of agricultural commodities.

A brief history of collateral

For hundreds of years, lenders have used collateral as security against the possibility of the borrower defaulting on payment. Collateral can include cash, government securities, mortgage-backed securities, bonds, equities, real estate, metals and commodities. In the early days, there were no legal standards and most calculations were performed manually on spreadsheets.

In modern banking collateral is mostly used in OTC trades, which are carried out directly between two parties, rather than through a regulated exchange. The OTC derivatives market is significant in some asset classes such as interest rate, foreign exchange and commodities.





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The potential of blockchain to deliver tangible business value has once again been demonstrated, this time in the area of collateral lending, claims ING Bank. In a ground-breaking transaction, it and Credit Suisse have this week carried out the first-ever live securities trade on a blockchain platform.

ING says the two banks successfully swapped EUR 25 million worth of high quality liquid assets using the collateral lending application of fintech HQLAx on R3's Corda distributed ledger platform. The technology driving the transaction was developed by ING's blockchain /distributed ledger technology (DLT) team.

ING notes that banks need high quality liquid assets to meet tougher liquidity requirements under Basel III. These are assets that can easily and immediately be converted into cash without losing their value. However, holding too many lowers their return, so efficient trading allows banks to optimize their balance sheets.

This latest transaction shows yet again how blockchain can make financial services faster, easier and more efficient. But its broader impact could be even more meaningful, says ING's Ivar Wiersma, head of Wholesale Banking Innovation. It is making the financial industry more efficient and resilient by creating a more transparent marketplace for exchanging digital assets.

"What's really different is that it gives the regulator the opportunity to get direct access to the ledger and see the entire digital history of the transaction, from where it originated to its ownership and attributes," he explains. "In the over-the-counter (OTC) environment, which is traditionally not that transparent, it could make the entire financial system more resilient."

This is the first transaction on Corda using HQLAx digital collateral records. It involved high quality liquid assets, but the concept of assets being tokenized and therefore digitized and traded is applicable to other assets classes as well, he adds. Potentially it could also revolutionize other parts of the capital markets, says Wiersma.

He points out that many of the blockchain applications that are being developed on Corda are close to real-life production, which is a sign of the good progress made in the platform's development and a clear benefit of the strong partnership with R3. In January, ING used its Easy Trading Connect platform to complete the first blockchain trade of agricultural commodities.

A brief history of collateral

For hundreds of years, lenders have used collateral as security against the possibility of the borrower defaulting on payment. Collateral can include cash, government securities, mortgage-backed securities, bonds, equities, real estate, metals and commodities. In the early days, there were no legal standards and most calculations were performed manually on spreadsheets.

In modern banking collateral is mostly used in OTC trades, which are carried out directly between two parties, rather than through a regulated exchange. The OTC derivatives market is significant in some asset classes such as interest rate, foreign exchange and commodities.



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