Use of intangibles as loan collateral might finally be at a breakthrough point. A story in today’s Financial Times (“Banks eye intangible assets as collateral“) discusses efforts to create IP recognized as collateral for purposes of Basel III bank regulation. At issue is whether these intangible assets count toward the required level of capital a bank must have. As the story notes:
Under the terms of many loans, banks have the right to seize a borrower’s patents and trademarks as part of a foreclosure proceeding. But these intangible assets cannot generally be counted towards the loan’s security for regulatory capital assets because they are considered too difficult to value.
The work around on the knotty valuation problem being proposed is insurance, where the insurance company would buy the IP at a fixed price in case of default. Details, including the pricing model, are, according to the story, still being worked out. Apparently, however, one deal may be going to regulators for approval soon. Obviously getting the pricing models right is the key step. It was the failure of those models for credit default swaps and other synthetic financial instruments that helped created the recent financial debacle.