reporting. Today’s needs are not only about capturing the right data


and then reporting to the regulators. The output has to be used in all business processes – the bank needs to adopt a risk management culture throughout its operations, from senior management through operations to branch staff. Basel II dovetailed with the tightening of corporate governance, with the need for senior managers to have an understanding of the models, data and output.


The idea of a single sub-ledger has taken hold in some


banks. It allows institutions to start to hook up the banking book and trading risk. Traditionally, these have been completely apart, with the former centred on traditional loans, deposits and the like, although also – ever more topically – securitisation. The associated risks have typically been measured and managed separately from trading risk, within separate systems. But one can have a direct effect on the other, so having tighter integration and visibility across both makes sense, even if the technical challenges are somewhat tougher than the theory. On the trading risk side, there is a clear business advantage from having integrated, intraday risk management that directly influences trading strategies and this, in turn, is bringing an architectural shift, currently mainly visible in tier one banks, with a layer being implemented directly behind the usually still disparate trading systems and feeding back to the traders in one direction and back to the end-of-day risk structures where relevant. Those tier one players that have survived the worst of the crises are arguably the ones that have cracked this challenge. ‘There is a reason why Goldman Sachs is still standing,’ observed one industry-watcher. The disconnect is a key reason why some organisations


got it so wrong. Take an early casualty, Bradford & Bingley in the UK. In May 2008 it revealed plans for a rights issue, having previously stated that it had no intention of doing so; in June it dropped the issue price from 82p per share to 55p after a sharp downturn in performance in the face of the UK’s property market slide. The data on B&B’s performance reportedly only reached the board at the end of May. Okay, so the state of the housing market per se should not have come as a shock, but the lack of up-to-date management information was startling. No wonder that today in many institutions the chief risk


officer’s office is next door to the CEO’s office. How can a bank run itself when it has inadequate information? Today, every company strives for a complete P&L – it is an accepted part of


how a proper company operates. Should the same not be true of consolidated real-time risk – should this not now become the norm? There needs to be a meaningful, up-to-date, agreed way of measuring all risk, which then influences the behaviour of the organisation, ensuring that decisions are made based on sound knowledge. This is starting to be embraced within the term ‘valuation risk’, which encapsulates integrating and assimilating risk across the whole enterprise, taking in front and back office, settlement risk, and payment risk; credit, market, and operation risk; bank book risk and trading risk. ‘Staying in business is the ultimate ROI for me,’ observed one consultant. A company that receives a demand for re- stating its figures from a few years ago, as a direct result of inaccurate returns, is likely to take a hit on its stock price, and may even become a takeover target. At the personal level, according to SOX rulings, a CEO signing off a company’s annual report as complete and accurate is putting his or her liberty at stake if those figures are not right. In a globalised market, working with complex sliced- and-diced collateralised debt obligations, it is phenomenally difficult to maintain an accurate view of the total exposure of the institution to risk. Every day a multitude of worrying questions are raised such as when and where an instrument will be settled, what exposure it carries, who is the issuer, who is the customer, who are the counterparties and what are their credit ratings. The longer it takes to answer questions like these, and the less accurate or trustworthy the answers and the underlying data, the greater the potential exposure during adverse market conditions. It is now clear, if it wasn’t before, that basically to survive and hopefully prosper, financial institutions need a comprehensive understanding of all the debt they hold and all the related information on customers, counterparties, issuers and collateral. This data is available but not necessarily co-ordinated. With a clear view of both their exposure to risk and the collateral they can offset against that risk, firms can weather the storm and prove their viability to the market. Steven Skrobala, senior director, EMEA financial services


at Oracle, felt there was now ever greater pressure on banks to improve their financial systems. ‘Banks are now looking at their whole ledger architecture.’ There should be better coordination and insights across different business lines, with financial data linked to day-to-day processes and individual transactions. That data should be used in an advisory capacity, not in isolation. There is a need for real change, with a less


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