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.