Will Business Intelligence Shine a Brighter Light on Bad Banks?

Let’s face it. If you’re bad at business you do not want to see a BI guy walking down the hall ready to slice and dice your data. All truths will be revealed.

Financial services companies and institutions have already been leading the way over the past 10-15 years with analytics and BI software adoption. Their risk analysis tools are the most sophisticated of any industry. Yet, the industry went hog-wild with risky mortgage bets. Why? Sophisticated analysis tools can provide you with numbers and projections, but they can't gauge the impact of collective human behavior in business, be it too much greed or too much fear.

It's true that Banks and Financial Services firms have historically used business intelligence software in greater numbers and with more skill than most any other industry. Identifying and correcting the complexity of the current Banking problems will require more than just good reporting and analysis software, I'm afraid. It would require superior ethics and better judgment. And, it would require new uses of business intelligence for governance, compliance and maybe even surveillance. At least these last three can potentially be delivered through a web browser.

BI Tools cannot do anything about the lack of investor protections in very risky kinds of investments. Lack of any kind of regulation for Mortgage Based junk bonds that were cut into small pieces and sold willy-nilly, is what created this global mess. In a constantly rising Mortgage Market till about 2007, BI tools would have shown tremendous, unbelievable returns no matter which way you slice and dice.

Now they can slice and dice the misery to see who suffered how much!!

The nub of the sub-prime issue, which triggered the financial crisis, was the way that some banks bundled up batches of bad loans to create a financial instrument that was subsequently rated as good. These financial instruments were then traded with counterparties who did not know the provenance of the underlying loans. In other words, they took a bunch of worthless trash, put it in a nice shiny wrapper and sold it on as a premium product.

Sadly, no amount of investment in BI in the purchasing bank could reveal the vulnerability of these financial instruments as they did not have the data. The failure there was that of the rating agencies and the banks risk managers who should have requested the information needed.

There is now a critical role for Business Intelligence in governance and compliance. Many banks are using BI to reveal the extent of the risk within their own lending portfolio, but a lack of data quality remains a significant challenge for a number of lenders.