Banking
Collateral management is moving from a largely periodic process toward a more dynamic model in which liquidity can respond much more quickly to changing market conditions.
Rob Hale, Co-Head of Global Markets at Lloyds Banking Group, argues that the key opportunity is to narrow the gap between the speed at which markets move and the speed at which collateral can respond. Current processes often rely on end-of-day valuations and settlement windows of 24 to 48 hours. Compressing that delay could improve both capital efficiency and financial-system resilience.
For institutional investors and private wealth structures operating across multiple currencies and jurisdictions, the significance extends beyond settlement mechanics. Faster collateral movement can potentially reduce the amount of capital that must remain unnecessarily idle and improve the efficiency with which liquidity is deployed.
The current collateral universe remains concentrated largely in cash and government bonds. Lloyds sees an opportunity to broaden the range of eligible assets, creating additional sources of liquidity while strengthening the overall market infrastructure.
The regulatory environment is also beginning to move toward more dynamic approaches to liquidity management. This creates a potential alignment between regulatory evolution and technological development.
The strategic objective is therefore not simply faster settlement. It is the combination of speed, a broader collateral base and improved capital efficiency.
For institutions managing significant balance sheets, that combination could become increasingly important as markets operate across longer trading windows and liquidity requirements become more responsive to real-time conditions.
The transition toward tokenised collateral is already moving beyond theoretical discussion.
Earlier in 2026, Lloyds completed what it described as a UK-first transaction using tokenised money market funds and gilts on the Hedera network as live margin for foreign-exchange trades. The transaction demonstrated that tokenised assets can function within live institutional markets.
The next challenge is therefore less about proving whether the technology can work and more about establishing infrastructure that can operate across the broader market.
Interoperability is central to that process. Tokenised assets need to move efficiently between platforms without creating isolated pools of liquidity. Common data models, smart-contract standards and messaging protocols will be necessary if digital collateral is to become genuinely scalable.
Regulatory capital treatment represents another important consideration. Lloyds’ view is that there are no fundamental legal barriers under current UK rules, while future regulatory changes could potentially recognize the lower credit exposure associated with intraday settlement.
Standardisation, client education and institutional trust will also determine how quickly tokenised collateral moves from individual projects into broader market infrastructure.
Lloyds views artificial intelligence and distributed ledger technology as complementary rather than competing technologies.
DLT can provide the always-on infrastructure through which collateral moves, while AI can help determine what collateral should move, when it should move and where it should be positioned.
In collateral allocation, predictive systems could forecast liquidity requirements across accounts and currencies, anticipate future flows and automatically reallocate balances. This could help reduce the amount of capital trapped in static buffers.
In liquidity management, AI could continuously monitor volatility, counterparty exposure and regulatory thresholds. It could also support continuous stress testing and reconciliation rather than relying primarily on periodic reviews.
The quality of the underlying data will be critical. Lloyds emphasizes that well-integrated, high-quality data is a prerequisite for effective AI applications in treasury and collateral management.
Governance is equally important. Automated systems need safeguards that prevent liquidity optimisation from inadvertently amplifying market stress. For that reason, Lloyds favors an incremental approach based on controlled pilots, strong governance and explainable models.
Continuous settlement does not eliminate risk. It changes where and how risk needs to be managed.
Tokenisation can reduce certain forms of settlement risk by allowing transactions to occur more immediately, but that makes funding precision and liquidity management more important.
For banks, this points toward real-time liquidity management and potentially greater importance for central-bank backstops. End-of-day liquidity cycles become less dominant when settlement can occur continuously.
Market infrastructures face a similar transformation. A 24/7 settlement environment requires continuous infrastructure, operational resilience and support models that can function across global time zones rather than relying on traditional market hours.
Regulators will also need to consider governance of the underlying code, legal certainty, settlement assets and international coordination. Lloyds argues that innovation in areas such as tokenised deposits should continue within the regulated banking system and retain the protections associated with that framework.
The long-term value of tokenisation depends on whether different digital systems can operate together.
A fragmented ecosystem in which tokenised assets remain confined to individual platforms could create new liquidity silos rather than solving existing inefficiencies. Interoperability therefore becomes a prerequisite for achieving the broader efficiency gains promised by digital collateral.
Common standards can help connect tokenised securities, digital money and existing financial infrastructure. This is particularly important for institutions operating across multiple markets, where collateral may need to move between jurisdictions, currencies and counterparties.
The strategic prize is an environment in which collateral can be mobilised quickly without sacrificing legal certainty, liquidity or regulatory safeguards.
Lloyds considers the industry to be in the early, foundational phase of what it describes as a genuine structural shift.
The change extends beyond individual collateral transactions. Collateral and payments are increasingly converging around shared digital infrastructure, with regulated systems potentially enabling on-ledger settlement in central bank money.
The longer-term objective is an ecosystem where tokenised assets, digital money and traditional financial infrastructure interact seamlessly. This could support atomic and programmable transactions while improving the efficiency with which capital moves through financial markets.
Lloyds’ own work is progressing from transaction validation toward scaling, with 24/7 settlement using tokenised central bank money identified as a future milestone.
For sophisticated investors and international businesses, the development of digital collateral infrastructure could eventually affect how liquidity is positioned across banking relationships.
A system capable of moving collateral continuously could reduce the need for excess liquidity buffers and potentially make a wider range of assets usable for financing purposes. For clients operating through multiple banking relationships, jurisdictions or currencies, that could create new opportunities for treasury optimisation.
However, the transition will depend on regulatory recognition, institutional interoperability and operational resilience. The technology alone does not determine whether digital collateral becomes commercially meaningful.
The more important question is whether banks, infrastructures and regulators can build a common framework in which faster settlement produces genuine capital efficiency without introducing new concentrations of operational or liquidity risk.
Lloyds’ assessment suggests that collateral management is moving away from a back-office settlement function toward a more strategic component of liquidity and capital management.
The combination of tokenised assets, distributed ledger infrastructure and AI could allow institutions to value, mobilise and allocate collateral continuously rather than through slower, periodic processes. If interoperability and regulatory frameworks develop alongside the technology, the resulting system could materially improve the efficiency of global financial markets.
For wealth owners, banks and international businesses, the relevant issue is not simply whether tokenisation succeeds. It is how quickly digital collateral becomes integrated into the regulated banking infrastructure that supports liquidity, financing and cross-border capital deployment.
The institutions that understand this transition early may be better positioned to manage liquidity efficiently as financial markets move toward an increasingly continuous operating model.
The evolution of collateral management has direct implications for institutional liquidity, private banking structures, treasury operations and cross-border financing. As tokenised securities, digital money and real-time settlement become more integrated into regulated financial infrastructure, sophisticated clients may need to reassess how assets are positioned across custodians, banks and jurisdictions.
For a confidential discussion regarding Swiss and international banking structures, collateral optimisation, liquidity management, tokenised assets, cross-border financial infrastructure, or strategic treasury arrangements, contact our senior advisory team.
August 25, 2026
August 25, 2026
August 25, 2026
August 25, 2026
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