Wooton cautions that the various kinds of analytics tools available, such as business activity monitoring, decision support software, data integration, and alerts, could have offered a warning but not fixed the underlying problem of financial services firms misjudging -- and in some cases, misrepresenting -- the risks of their loans and securities.
But taking analytics, CEP, and data integration to the next level to give regulators a sense of what all the financial institutions were doing and what the liquidity risks actually were could have helped, and could prevent a recurrence, Corcoran says. He says that the use of middleware could bring the data together and create a "common front end" that is shared by regulators and the services companies alike.
But that front end needs a common back end, especially around the data that should exist, says consultant Greenbaum. "The data model for doing the analysis doesn't exist," he says, so a company selling securities and packaged mortgages doesn't include the packaging history. "You can't do the classic drill-down," Greenbaum says, because no one knows what the relationships are because the metadata hasn't been preserved -- or at least not preserved in a way that is easy to find.
Integration is a double-edged sword
While integration of data and the analytics around financial investments could help prevent future financial meltdowns, it's also true that the integration of business activities on a global scale helped get us into this crisis in the first place, says Suzanne Duncan, financial markets industry leader for the Institute for Business Value.
"Firm-to-firm and country-to-country integration is increasing. This improves efficiency because it lets capital flow to where it is needed, but at the same time these linkages cause larger shocks at a greater frequency," Duncan says.
The reason comes back to the lack of visibility into financial risks and liquidity both at the individual financial institution and globally. Because the information is too scattered throughout the firm and held in silos of information systems, many financial institutions did not even have a grasp on the loans they held, he says.
"Many of these bigger firms don't know what their counterparty exposures are. They don't know how much Lehman Brothers owes them," Wooton adds. (A counterparty is any organization with which your company has some kind of relationship with, be it as partner or as a client.) Duncan agrees: "No matter which part of the ecosystem you are talking about, companies don't know what their counterparty exposures are." Duncan's company is in the midst of working with its Asian clients to root through what their exposures are.
Retail algorithms may be reused for financial services
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