Of Special Interest

24th May 2011

IBM on systemic risk

Keith Saxton, IBM Global Director for financial markets recently made some interesting remarks on banks and systemic risk, looking at areas that have been not been given enough attention to date. He points to the lack of investment in back office systems which led to banks not understanding the assets they held. Keith quotes the UK Public Accounts Committee who concluded that both part-nationalised banks - Royal Bank of Scotland and Lloyds Banking, "found it difficult to provide the Treasury with appropriate and robust data on their assets. We found this alarming,".

Whilst this may seem like a pitch to sell more systems hardware, Keith went on to say that "The issue of better data isn't one of technology; it's that banks need better processes and better discipline. Analysing the data gap will benefit the industry, in spite of its resistance, by improving its plumbing. With good, well-structured data architectures, banks will be prepared for analytics and for some standardised tests such as quarterly stress testing aligned to stability reports."

Later, comparisons are drawn with the significant real time modelling that companies such as eBay and Amazon run and sectors such as high frequency trading. It is argued that the same could be applied to the banks' back office systems. Once again though, the point is stressed that success with these techniques is dependent on "clean, granular data".