The wholesale financial markets froze because the banks
realised that each was holding a portfolio of investments that
resembled a tangled ball of knitting. The devil here really is in
the detail. The banks will only start lending to one another once
they have a complete and accurate view of their liabilities and
exposures, writes
Informatica's
financial services specialist, Mark Dunleavy.
Accomplishing this will involve a major industry-wide data
integration initiative that drills down into the detail of hundreds
of thousands of mortgage-backed securities to locate the toxic
assets behind the banking crisis. This will require integrating
asset data into a centralised system to assemble a complete view of
the risks that these financial instruments pose to their
businesses.
Nor is this challenge restricted to the banking sector. The
British government, as owner of both Northern Rock and Bradford
& Bingley's mortgage assets, will need to do the same before it
can transfer these back into private ownership, as is planned.
Data integration and data quality projects are already familiar
to the banking sector, where they are routinely used to reconcile
the information held on customers across myriad systems. With time
of the essence and public money at stake, however, banks' success
at tackling the crisis may be measured by how quickly and
efficiently they can identify the good loans from the bad and
kickstart the wholesale market again.
Informatica also believes that the legislation widely expected
to follow widespread state aid will mandate banks to keep a tighter
rein on the quality of their investment and customer data,
particularly where it relates to securitised assets.
As the taxpayer becomes a major shareholder in high street
banks, they can expect increased scrutiny in return. Governance
oversight committees, government-appointed board directors and a
stronger FSA will all ensure that the regulatory emphasis will go
on "good financial housekeeping". Here the quality of customer and
investment data will drive risk-based decision making, requiring
banks to integrate this information more effectively and safeguard
its quality.
Moreover, with the state now in the position of owning thousands
of the UK's riskiest mortgages following Bradford & Bingley's
collapse, this will apply to government as well. Using technology
to understand these assets is a crucial part of ensuring that they
represent a minimum drain on taxpayers' money in the medium to long
term.
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