Beyond lending revenue: Rethinking securities finance for asset owners
05 November 2026
As asset owners balance lending income with collateral obligations and liquidity demands, BNY's John Templeton, global head of securities finance sales and relationship management, and Nick Kurzel, senior director, Collateral, Financing & Liquidity, consider a more connected approach to securities finance
Image: stock.adobe.com/jozefmicic
An asset can be attractive to a securities borrower, eligible to meet a collateral obligation, and valuable as a liquidity reserve. But it cannot necessarily serve all three purposes at once. Who decides which use takes priority, and on what information?
For asset owners, that question brings securities finance into a broader conversation about investment implementation, liquidity preparedness, and governance. Incremental lending income remains important. The opportunity is to evaluate that income alongside the flexibility an institution needs to meet obligations and maintain its investment strategy.
The objective is not simply to lend more or hold less cash; it is to understand how portfolio assets can support different needs, what each choice costs, and whether the operating model can respond when priorities change.
When a good lending decision is not the whole answer
Consider a hypothetical pension fund holding government bonds while using derivatives to manage investment exposures. Some bonds may generate lending income, while others may be needed as collateral or retained against potential liquidity demands.
These competing demands can lead to different views of the same pool of assets. The lending team might favour additional utilisation, while the treasury team prefers a larger reserve. Neither perspective is necessarily wrong. The challenge is to compare the lending opportunity with the value of keeping assets available, and to understand how quickly lent securities could be recalled.
The result is a balancing exercise, rather than a simple effort to maximise utilisation. A higher lending balance does not, by itself, establish a better portfolio outcome. Equally, keeping every potentially useful asset idle can carry an opportunity cost. The appropriate balance depends on investment objectives, contractual obligations, risk appetite, and operational readiness.
That balance is at the heart of asset utility: making deliberate choices about competing uses within investment objectives and risk limits. The same principle applies equally to insurers balancing investment income and collateral needs, or sovereign institutions prioritising control and resilience.
Collateral from inventory to usable capacity
Inventory intelligence connects these choices because a security’s usefulness depends on more than its market value. Location, eligibility, encumbrance, settlement timing, and the terms of an agreement determine whether it can meet a particular obligation.
An asset may be liquid in the market yet unavailable for immediate delivery. A security accepted by one counterparty may be ineligible with another. And where cash is required, holding eligible securities elsewhere does not automatically solve the problem.
The distinction matters during stress. The Financial Stability Board’s work on liquidity preparedness highlights how sudden margin and collateral calls can amplify liquidity demands. The lesson is not that collateral removes risk, but that institutions need to understand both of their obligations and their ability to meet them.
Triparty can support allocation, valuation and substitution under agreed rules, and facilitates execution of a client’s liquidity planning. Technology makes decisions easier to implement, while governance determines which decisions are appropriate.
Fragmentation has an opportunity cost
Assets distributed across custodians, accounts and legal entities are a familiar feature of institutional portfolios. Multiple providers can serve legitimate investment and governance objectives. The problem is not diversity itself, but insufficient connectivity between assets, obligations, and decisions.
Without a shared view, teams may reserve assets that could be deployed elsewhere, overlook eligibility constraints, or rely on manual transfers close to a deadline. The resulting friction can raise operating costs and reduce confidence in asset availability.
A connected model does not need to consolidate every service with one provider. It needs reliable information, clear responsibilities, and effective workflows across existing arrangements. Visibility is valuable only if it supports timely action, and if restrictions remain visible rather than being obscured by a consolidated view.
Third-party lending through a wider lens
Third-party lending allows an asset owner to appoint a specialist lending agent independently of its custodian, potentially supporting assets across multiple custody locations while preserving existing servicing relationships.
That broader perspective changes what asset owners should look for. It cannot be just borrower access and lending performance, but a provider that connects a broad range of financing options with collateral intelligence and liquidity capabilities. Can it help clients assess and access different routes as needs change, rather than viewing every requirement through a lending-only lens?
Look for visibility into available assets and competing obligations, efficient collateral allocation and movement, and reporting that clarifies trade-offs between income, funding costs, and liquidity.
Connecting capability without losing control
At BNY, we see lending, collateral, and liquidity as connected elements of asset deployment. Agency lending expertise, inventory management, principal financing capabilities, and custodial connectivity can support a more coordinated approach, tailored to a client’s requirements.
CollateralONE illustrates that direction by connecting collateral workflows with securities finance and liquidity capabilities. The broader value proposition is not simply access to more products. It is helping institutions understand available options and implement approved decisions with greater visibility and operational consistency.
For asset owners, the starting point is simpler: when priorities change, can the institution see its options, assess the trade-offs and act within its controls? That may be a more revealing measure of securities finance effectiveness than lending revenue alone.
For asset owners, that question brings securities finance into a broader conversation about investment implementation, liquidity preparedness, and governance. Incremental lending income remains important. The opportunity is to evaluate that income alongside the flexibility an institution needs to meet obligations and maintain its investment strategy.
The objective is not simply to lend more or hold less cash; it is to understand how portfolio assets can support different needs, what each choice costs, and whether the operating model can respond when priorities change.
When a good lending decision is not the whole answer
Consider a hypothetical pension fund holding government bonds while using derivatives to manage investment exposures. Some bonds may generate lending income, while others may be needed as collateral or retained against potential liquidity demands.
These competing demands can lead to different views of the same pool of assets. The lending team might favour additional utilisation, while the treasury team prefers a larger reserve. Neither perspective is necessarily wrong. The challenge is to compare the lending opportunity with the value of keeping assets available, and to understand how quickly lent securities could be recalled.
The result is a balancing exercise, rather than a simple effort to maximise utilisation. A higher lending balance does not, by itself, establish a better portfolio outcome. Equally, keeping every potentially useful asset idle can carry an opportunity cost. The appropriate balance depends on investment objectives, contractual obligations, risk appetite, and operational readiness.
That balance is at the heart of asset utility: making deliberate choices about competing uses within investment objectives and risk limits. The same principle applies equally to insurers balancing investment income and collateral needs, or sovereign institutions prioritising control and resilience.
Collateral from inventory to usable capacity
Inventory intelligence connects these choices because a security’s usefulness depends on more than its market value. Location, eligibility, encumbrance, settlement timing, and the terms of an agreement determine whether it can meet a particular obligation.
An asset may be liquid in the market yet unavailable for immediate delivery. A security accepted by one counterparty may be ineligible with another. And where cash is required, holding eligible securities elsewhere does not automatically solve the problem.
The distinction matters during stress. The Financial Stability Board’s work on liquidity preparedness highlights how sudden margin and collateral calls can amplify liquidity demands. The lesson is not that collateral removes risk, but that institutions need to understand both of their obligations and their ability to meet them.
Triparty can support allocation, valuation and substitution under agreed rules, and facilitates execution of a client’s liquidity planning. Technology makes decisions easier to implement, while governance determines which decisions are appropriate.
Fragmentation has an opportunity cost
Assets distributed across custodians, accounts and legal entities are a familiar feature of institutional portfolios. Multiple providers can serve legitimate investment and governance objectives. The problem is not diversity itself, but insufficient connectivity between assets, obligations, and decisions.
Without a shared view, teams may reserve assets that could be deployed elsewhere, overlook eligibility constraints, or rely on manual transfers close to a deadline. The resulting friction can raise operating costs and reduce confidence in asset availability.
A connected model does not need to consolidate every service with one provider. It needs reliable information, clear responsibilities, and effective workflows across existing arrangements. Visibility is valuable only if it supports timely action, and if restrictions remain visible rather than being obscured by a consolidated view.
Third-party lending through a wider lens
Third-party lending allows an asset owner to appoint a specialist lending agent independently of its custodian, potentially supporting assets across multiple custody locations while preserving existing servicing relationships.
That broader perspective changes what asset owners should look for. It cannot be just borrower access and lending performance, but a provider that connects a broad range of financing options with collateral intelligence and liquidity capabilities. Can it help clients assess and access different routes as needs change, rather than viewing every requirement through a lending-only lens?
Look for visibility into available assets and competing obligations, efficient collateral allocation and movement, and reporting that clarifies trade-offs between income, funding costs, and liquidity.
Connecting capability without losing control
At BNY, we see lending, collateral, and liquidity as connected elements of asset deployment. Agency lending expertise, inventory management, principal financing capabilities, and custodial connectivity can support a more coordinated approach, tailored to a client’s requirements.
CollateralONE illustrates that direction by connecting collateral workflows with securities finance and liquidity capabilities. The broader value proposition is not simply access to more products. It is helping institutions understand available options and implement approved decisions with greater visibility and operational consistency.
For asset owners, the starting point is simpler: when priorities change, can the institution see its options, assess the trade-offs and act within its controls? That may be a more revealing measure of securities finance effectiveness than lending revenue alone.
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