Lots and A number of Knowledge
To better recognize the magnitude of the problem that lies ahead for banks with the approaching into effect of Basel three, let's place it in its proper context.
First the monetary providers business holds huge quantities of information - in all probability more than every other sector of the economy except the technology business. The truth is, to put this enormity in perspective, a an estimate from world consulting firm McKinsey put the scale of all bank-stored info at 1 exabyte (EB) - the equivalent of 1,000,000 terabytes (TBs). Given the inherently delicate nature of financial knowledge, it might be secure to assume that majority of such stored knowledge would play an element in computing the chance exposure of any given financial institution and also form the idea for the regulatory reporting envisaged in Basel III.
Looking at such copious amounts of data, it becomes clear that the need for a robust threat information warehouse is extra than just making ready for compliance with Basel III provisions - it is instead about creating the precise environment for consolidating and analyzing data that ensures risk administration decisions and regulatory studies are primarily based on full, appropriate and uncompromised knowledge. As you'll anticipate, banks have throw hundreds of billions of dollars at their data management considerations over the years (they collectively spent over US$ 330 billion in 2011 by some estimates). Yet, even with such big spending, many incidents proceed to point out that purchasing expensive programs just isn't a silver bullet that results in higher threat administration and stronger inside controls.
Now, throw within the three challenges posed by Basel III (finding the suitable information, converting information in several codecs right into a single coherent format and eventually, making available that knowledge to the suitable viewers) and you can make sure that CEOs, CFOs, CROs and CIOs have their work cut out. Yet, the preparation, evaluation and management of knowledge for threat evaluation and regulatory reporting (whether for Basel III or in any other case) can be condensed into three major steps:
Step 1 - Combine Present Programs
As opposed to the finance department using 5 different applications, credit risk depending on 6 methods and human resources having 3 distinct methods for employee appraisal, payroll and monitoring personnel medical insurance, the first step any financial institution ought to take to have a seamless threat management and regulatory reporting framework is lowering the number of systems, data repositories and thus data codecs discovered inside the whole group.
Transitioning a corporation from disparate programs into more unified enterprise platforms tremendously will increase overall effectivity and offers a stable foundation for streamlining information that can finally be fed into the chance administration data warehouse.
In addition, the method of integrating current programs also presents a rare alternative for executives, line managers, threat officers and IT employees to ‘clear up’ processes in great detail - some type of business course of re-engineering. Thus, the mixing course of ensures the correctness, completeness and integrity of the data that will likely be used for Basel III risk analysis and reporting whereas at the same time guaranteeing routine tactical and strategic selections are based on high quality knowledge.
Step 2 – Develop Risk-Aware Knowledge Models
Let’s face it, danger management is not a bank’s core business. The constant friction that exists in virtually any large bank between danger features on the one hand (equivalent to danger, audit, compliance and authorized) and core enterprise features on the other (operations, marketing, customer support etcetera) is clear testament to this fact. Like every other business, banks exist primarily to generate profits whether or not it's by means of traditional financial institution earnings akin to transaction fees, mortgage curiosity and foreign exchange trading, or it is by way of more refined products equivalent to derivatives.
For that reason, the pure approach toward structuring danger data warehouse fashions is creating the models constructed arou