Thursday, August 11, 2011

21st century financial system based on granular level data

I apologize for having lost the source of the following quote, but it neatly summarizes much of the discussion on this blog.

I might be wrong, but I think all signs point to the global financial system evolving to a system based on easy access to granular level data.   
Regulators are going to require this data so they can monitor the interconnectedness of financial institutions - see the Office of Financial Research as the first of the regulatory entities set up to collect granular level data.   
Financial institutions are going to require this data so they can make fully informed decisions about how much credit to extend to other financial institutions.   
Investors are going to need this data to purchase the new financial instruments that transfer credit risk from the financial institution balance sheet to their own balance sheet - see the structured finance model for contingent capital. 
This prediction seems reasonable as the cost of collecting, transmitting and analyzing granular level data has fallen dramatically over the last 3 decades and is likely to continue declining in the future. 
The critical question is whether regulations are evolving that support or interfere with this new financial system.  For example, does providing loan level data for structured finance securities in a template accelerate the use of granular data or just create a data silo?

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