TECHNOLOGY
directly with portfolio managers. The spreading can be done automatically, based on the given methodology, ensuring consistency across thousands of counterparts before a final check by the credit o ffi cer. Second, contract consolidation is a daunting issue in banking. Over the years contracts may, for good reasons, undergo numerous amendments and waivers, complicating the process of tracking which clauses apply at any given time. Typically, contracts are not restated, so banks have the initial contract plus a number of waivers, some of which may be temporary. So banks have to know that from date X to date Y there is a new covenant that would apply; but after date Y this will come back to the original covenant. It’s very confusing and when you have thousands of contracts, ensuring that one knows exactly which clause applies at any point in time is di ffi cult. At EIB we are exploring technology that enables consolidation, integrating the original contract with the various waivers, before highlighting the changes to ensure awareness of the prevailing clauses. This ensures that portfolio managers can verify more easily the current status of any contract. Moreover, this technology enables to compare contracts with same clients or across peers to ensure consistency, minimizing legal risks associated with all these various clauses. Say an institution has 100 contracts with a particular counterpart. The institution may not know whether all 100 contracts have the same clauses or if the clauses are
consistency across contracts with the same counterpart. This also allows for more robust standard setting across our customer base and a stronger position during negotiations. For example, if a counterpart says that they don’t accept a certain clause, the institution can quickly identify the clause, compare and say: “Listen, you would be the only one
“Satellite technology can provide a very detailed matrix for this physical climate risk and reduce the need for on-site visits, saving both time and resources.” Guido Bichisao, Senior Advisor, European Investment Bank
who does not accept this clause.” The third and final innovation is
related to impact assessment. Financial institutions normally do not have enough granular data to fully assess the impact and environmental risk of financing a given project. We have therefore introduced “climate scoring”, which means we categorize counterparts by sector or geography and then give each sector and geography a risk score. But this is not enough. One new option comes from satellite images, which enable us to track historical trends and the impact of various activities. They provide amazing detail and cover the full spectrum of light, including infrared, allowing us to monitor evolutions such as a building’s CO 2 emissions, the health of vegetation, water quality of water and risks of floods or landslides. This technology can provide a very detailed matrix for
entirely consistent. Take a general clause like force majeure . If an institution made a contract a decade ago (or even last year) it might be that the text of that clause has been slightly amended. Then you have one counterpart, but di ff erent clauses for the same event – which is a legal risk. Being able to compare enables
36
Powered by FlippingBook