Summit analysis: To what extent was technology responsible for the financial crash?

Banks need to integrate systems and clean up their data to make sure information is accessible and reliable

Did an excessive reliance on technology on the part of the banks lead to the recent financial crisis? More specifically, did banks fail because their business intelligence tools (BI) were not up to scratch?

During V3.co.uk's Information Overload Summit, technology firms argued that it was not a reliance on technology that led to the crash but a reliance on weak technology and poor processes.

BI vendor Microgen, which boasts seven out of the top 10 banks as customers, argued that it was the use of inappropriate business tools such as Excel spreadsheets to manage assets and liabilities that led to the meltdown, because it meant banks lacked financial transparency, consistency and auditability.

Microgen chief operating officer David Sherriff said, “The technology was there to support established risk management procedures but there was also a heavy reliance on manual processes and spreadsheets.

“Many commentators have come out to say that the technology should have performed better, but the business processes have to be in place first in order to then align technology."

Sherriff said businesses cannot just implement a BI system and assume that all their problems are solved.

“BI dashboards only produce the reports that they are requested to generate and many banks didn’t know that the potential underlying problems existed, so they weren’t looking to analyse them,” he said.

“BI tools often only flag up problems when it is too late – the deal has been done. They are not a good preventative measure."

Data integration firm Informatica said the banks ran into difficulties because they did not have access to a clean set of data.

“To make data both accessible and reliable, you need to establish standards, policies and processes for data usage, development and management. We’re seeing more and more banks adopt this approach now,” said Informatica senior vice president of Europe, John Poulter.

“If you feed poor quality data into a BI system, you’re going to get a report based on incorrect facts meaning that decisions are based on flawed information."

However, QlikTech, another BI player, argued that if BI tools had been more widely used, the crisis could have been averted.

“If organisations were using the tools more widely then they could have had more warning,” said Sean Farrington, QlikTech UK managing director.

But Farrington agreed with his industry counterparts that BI tools alone could not have stopped the banks acting as they had and that the processes banks employed were the real problem.

“It is the risk management philosophy underpinning BI and information management tools that could have seen it avoided,” he said. “BI allows business to focus on certain areas but rules are there to guide a risk management strategy. It’s like you have to know a disaster is happening before you turn a traffic light red.”

Since the financial crash, banks have come under pressure from the Financial Services Authority (FSA) to use technology to profile their financial positions in real time for risk management purposes.

Sherriff advised banks to implement a system that will integrate finance, risk and liquidity management to create a single standardised view of all their data.

“With the new systems they need to be able to pull together reports at a moment’s notice with full details of transactions and balance sheet as well as simulate ‘what if’ scenarios,” said Sherriff.

Informatica’s Poulter said this integration would give a “360-degree view of their operations”.

“As most banks are the products of mergers and acquisitions and consist of many separate divisions, the data on each individual customer’s savings, investments and borrowings can sit across several different computer systems that don’t talk to each other,” he said.

“Integrating data across multiple sources is a complex task, but ensuring that there is adequate, timely and most importantly reliable explanatory data attached to their activities is crucial to getting back on an even keel.”

On the issue of whether a system can be put in place to give financial watchdogs insight into the relationship banks have with each other, Sherriff said this will require banks to expose their tracking activity, which will be a difficult task considering they are in competition.

Poulter added, “While banks are keen to improve their financial transparency and they want assurances from their trading partners, it is widely considered to go against the culture of financial services to provide such unprecedented visibility into their balance sheet to their peers and competitors.”

Visit our dedicated Summit web site for more breaking news, views, analysis and video on the topic of Information Overload.