Wednesday, March 14, 2012

Andrew Haldane: Towards a Common Financial Language

In his speech to the Securities Industry and Financial Markets Association, the Bank of England's Andrew Haldane laid out why we need ultra transparency delivered through the Mother of all financial databases.

He observed
Finance today ... has no common language for communicating financial information.  Most financial firms have competing in-house languages, with information systems silo-ed by business line.  Across firms, it is even less likely that information systems have a common mother tongue. 
Today, the number of global financial languages very likely exceeds the number of global spoken languages.      
The economic costs of this linguistic diversity were brutally exposed by the financial crisis.  Very few firms, possibly none, had the information systems necessary to aggregate quickly information on exposures and risks. 
This hindered effective consolidated risk management.  For some of the world’s biggest banks that proved terminal, as unforeseen risks swamped undermanned risk systems.    
These problems were even more acute across firms.  Many banks lacked adequate information on the risk of their counterparties, much less their counterparties’ counterparties.  The whole credit chain was immersed in fog.   
These information failures contributed importantly to failures in, and seizures of, many of the world’s core financial markets, including the interbank money and securitisation markets....
A common financial language has the potential to transform risk management at both the individual-firm and system-wide level.   
It has the potential to break-down barriers to market entry, leading to a more decentralised, contestable financial sector.  And it thereby has the potential to both boost financial sector productivity and tackle the too-big-to-fail problem at source.    
There is no technological barrier to this transformation.  
Please re-read his statement as it summarizes the argument that your humble blogger has been making since before the financial crisis began for why we need ultra transparency delivered through the Mother of all financial databases.

Finally, please note the setting for this speech.  SIFMA is a charter member of Wall Street's Opacity Protection Team.

One of the ways they promote opacity is by delaying the building of the Mother of all financial databases.  An example of how this is done is the entire discussion of legal entity identifiers.  If the database were being built today, the designers of the database would choose and enforce a legal entity identifier system.  There would not be months of discussion as to which is the best system...

No comments: