Collapse of Tricolor, First Brands highlight need for new standards in asset-backed finance

Double pledging is as old as markets. The Code of Hammurabi governed pledges more than 4,000 years ago. The first recorded court dispute of a double pledge dates back to Ancient Greece.

Last week, Tricolor carried that history forward. The company allegedly pledged identical loan portfolios to multiple banks, securing more financing than its assets could support. The collapse left lenders with billions in losses, more than a thousand employees without jobs, and nearly 100,000 borrowers uncertain where to send payments. Shortly afterward, First Brands suffered a similar fate. 

Double pledging exploits a structural gap in the ABF market: the absence of a trusted, centralized record of ownership and asset quality. We no longer need to accept this blind spot. The infrastructure exists today to track collateral in real time, enforce single pledges, and prevent these failures before they happen.

Many Systems Trust But Don’t Verify

Following the 2008 financial crisis, the RMBS market benefited from a coordinated industry response that delivered greater transparency into asset ownership and quality. By contrast, the ABF market – backed by a diverse range of asset classes – remains fragmented in its approach to validating borrower-provided information.

Today, ABF capital providers depend on a patchwork of in-house risk controls and limited, sampling-based document reviews to ensure compliance. These methods place heavy reliance on borrower representations and warranties, leaving critical information gaps.

As the market grows more complex, the risks of unintentional errors and fraud increase. Borrowers often juggle multiple warehouse lines, securitizations, and bespoke facilities, each with unique eligibility rules and reporting requirements. Attempting to reconcile this ecosystem through Excel files, PDFs, and email threads is inefficient, error-prone, and exposes the system to operational and credit risk.

This Problem is Systemic

Across asset classes – secured and unsecured, consumer and commercial – similar risks persist:

• Opaque Collateral Pools: Lenders rely heavily on originator-reported data without independent verification.
• Fragmented Data: Market accepted practices verify data in isolation, and lack sufficient information to identify double pledging.
• Reactive Controls: Legal covenants and warranties are designed as backstops, not real-time safeguards. They trigger after damage has been done. 

Proactive Infrastructure Outperforms Reactive Controls 

Just as payments moved from batch processing to real-time settlement, risk management in asset-backed finance must evolve from post-mortem discovery to continuous verification. That means:

• Validate collateral quality: Originators and lenders should apply technology that links reports, flags anomalies, and combines human review with AI to verify asset data and supporting documents.
• Validate collateral ownership: Originators should engage an independent third party to confirm assets are pledged only once and to ensure no adverse selection.
• Monitor continuously: Collections, portfolio composition, concentrations, and anomalies should be reviewed on an ongoing basis – ideally in real time or at least monthly – rather than waiting for an annual AUP report.

The benefits are twofold. Lenders with strong infrastructure can scale faster, price risk more accurately, and win business with confidence. Originators who adopt transparent systems reduce liquidity risk, lower funding costs, and expand access to capital.

Rebuilding Confidence

Double pledging may be as old as markets, but accepting it as inevitable doesn’t have to be. Tricolor and First Brands demonstrated the cost of relying on trust and sampling. The path forward is not to abandon trust, but to strengthen it –  moving from assumptions to evidence, and from exposure to control.