Banks are using computer systems that are "unfit for purpose"

In a Telegraph article, Intellect, the trade body for the UK's technology sector, exposes the dirty secret of banking:  their information technology is 'unfit for purpose'; specifically, to providing managers and regulators with the information they need to assess the risk of each bank.

Regular readers know that your humble blogger has been advocating the creation of the 'Mother of All Financial Databases' to collect, standardize and disseminate all of the current global asset, liability and off-balance sheet exposures of each bank.

It is the data in this database that would provide the information all market participants, including the banks themselves and the regulators, need to assess the risk of each bank.

Creating the data warehouse to support the Mother of All Financial Databases would be less expensive than having each bank upgrade its information systems.  Plus, it has the added benefit that the data warehouse bring transparency to the banking sector.

Banks are using computer systems that are “unfit for purpose” and as a result have little idea what is going on inside their own businesses, a report has warned. 

Banks are using computer systems that are “unfit for purpose” and as a result have little idea what is going on inside their own businesses, according to a new in-depth report on the technological problems facing the industry. 

Decades of under-investment in up-to-date technology mean the basic “plumbing” that underpins banking operations is not up to the task of providing managers and regulators with the information they need to understand the risks banks face, according to the report by Intellect, the trade body for the UK’s technology sector. 

Intellect warns that four years on from the financial crisis when banks’ systems were shown to be unable to provide timely and accurate information on risk exposures, little has been done to improve the situation.

This is the direct result of the financial regulators and policymakers failure to require banks to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.

This information can easily be made available on a borrower privacy protected basis.

Your humble blogger knows, because he has developed information systems for doing precisely this!

“Within individual banks, poor infrastructure does not afford a timely and accurate view of 'the whole’ of their operations and exposures. 

Please re-read the highlighted text because it nicely summarizes what your humble blogger has been saying about both banks and structured finance securities.

Please note the emphasis on timely.  Regular readers know that "timely reporting" for banks and structured finance securities is observable event based reporting.  Whenever there is an activity that effects the underlying exposures at banks or structured finance securities, it should be reported to all market participants before the beginning of the next business day.

This reporting would be easy to do as it is consistent with how bank information systems currently track the underlying exposures.

“In effect, they do not know their own businesses well enough. Therefore it is impossible for the regulatory authorities to build a macro view of 'the whole’ of the financial system that allows them to identify and mitigate risks across it,” said Intellect.

The bottom line:  providing ultra transparency will be as helpful to the banks in understanding the risks they are taking as it is to market participants.