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Blockchain and Loans

March 2, 2017 - The potential of blockchain was an overriding theme at SFIG Vegas this week. While blockchain is slated to solve everything but the common cold, it was noteworthy that – even in a large, multi-asset securitization conference – syndicated loans were flagged as a particularly compelling use case. 

In fact, this theme has been accelerating lately. Last week, Risk.net detailed how R3, a consortium of banks, institutional investors and technology providers, is exploring blockchain’s ability to reduce settlement times and other inefficiencies in the syndicated loan market. The proof of concept is expected to be demoed in mid-March; ideally by next year, blockchain can take over processes for a small subset of loans. The idea is that, with blockchain, lenders would have direct access to systems of record for syndicated loans, obviating the need for manual review, data re-entry and reconciliation, Risk.net explains. Thus, blockchain technology theoretically can facilitate faster settlement and more efficient loan processes. 

Of course, technological impediments are not the only sticking point with loan settlement. As Bram Smith, LSTA Executive Director, explained in the article, “[Settlement] is an extremely complex problem, involving elements of legal, operations, behaviour and technology.” And that is why, while supporting blockchain initiatives, the LSTA has taken a multi-disciplinary approach to shortening settlement times. On the behavioral front, last September the LSTA introduced the new “delayed compensation” regime with the express goal of expediting settlement. And, as the WSJ wrote last week, the new delayed comp regime seems to be working. Despite suffering from the usual “January Effect” – detailed in the February 24, 2017 LSTA Newsletter – settlement times have trended down since the new regime went live. (One observation with respect to the excellent WSJ article: The LSTA generally welcomes blockchain, rather than fears it. Indeed, we have a whole panel devoted to it at the April 4th Ops Conference.)

*Note that some of the linked articles require subscription or registration*

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