What does a Collateral Manager do?

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An escrow manager is an employee of a financial organization responsible for overseeing the escrow process. This process is one where some form of loan or credit agreement is secured through an asset that will become the property of the lender in the event that the borrower fails to repay the money. In many cases, a collateral manager works for a third-party organization designed to assist both the creditor and the debtor.

One of the most common roles of a warranty manager is negotiating a warranty management agreement. The agreement is a contract between the lender, the borrower and the collateral management company. Because these deals have so many variables, these deals are often created individually rather than simply adapted from a template.

Another key role of the Assurance Manager role is to help both sides agree on the financial details of the process. This involves two main elements. The first is to assess the statistical risk of the borrower not being able to repay the loan, and therefore what a fair and reasonable amount of collateral is.

The second element is to assess a fair value for the specific asset that the borrower offers as collateral. Assigning a fair market value can be a tricky issue, as some forms of collateral, such as a financial asset, can vary in price over time. The collateral manager can help by independently assessing the likelihood that the lender will consider the collateral to be more or less valuable if and when it is lost compared to when the deal is closed.

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Collateral management also inherently involves extensive legal work, which may involve ensuring that both sides have their interests protected by the agreement. It may also include developing a mutually acceptable system for resolving any disputes.

When open credit investment positions are involved, such as when a company allows an investor to buy stocks using borrowed money, a collateral manager can handle margin calls. The rules of such a transaction generally state that an investor must make an additional payment if the share price falls, because a reduction in price increases the chance that the borrower will incur a loss on selling the shares and therefore be less likely to pay. the original loan. The amount of money an investor must pay varies with the stock price, and part of the money will be returned to the investor if the stock price rises. This money works as a form of collateral, as it will be lost if the investor fails to repay the loan.

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