Banking leads many industries in the application of
analytical technologies to business problems. We can gain some interesting insights
by reflecting on where we have come from over the past 30 years to gain
perspective on where we are going. In this post (and the next few) I will provide
a retrospective view of bank analytics evolution to highlight emergent patterns
that may inform your thinking about where your strategy should be heading. I welcome
fellow BAI Community members to dissent, agree or comment freely as my ambition is to provoke a thoughtful discussion that benefits the
community.
Let’s start by laying out two key timelines in parallel - major events
affecting our industry and major regulatory changes - as a baseline. There is a
distinct pattern of new regulatory regimes following closely after major industry
events, which should come as no surprise to the members of this community.
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The 80s were marked by interest rate peaks and a prolonged inverted yield curve
which allowed interest rate risk to wipe out the profitability and capital of most
of the Savings & Loan sector. This put Asset & Liability / Interest
Rate Risk management in the regulatory limelight, driving adoption of matched
maturity funds transfer pricing (FTP) as a core tool for monitoring A&L mismatch
and enabling measurement of deposit and loan product margins.
The 90s brought us a lending crisis starting in UK
real estate and spreading to North America.
This advanced the analysis and quantification of credit quality and credit
related risk at both account and portfolio levels - in no small part driven by
the first Basel Accord.
Early in the new century 9/11 brought us the Patriot Act, which spawned the
required Anti Money Laundering (AML) transaction analytics capabilities needed
to comply with Homeland Security (and fraud detection) needs. At the same time the Basel
Accords expanded to include understanding (and measuring) capital requirements
associated with non-credit risks.
Most recently liquidity has moved to the foreground as a consequence of the
2008 global financial liquidity crunch. Basil III and balance sheet “stress
tests” are now in the spotlight.
What can we learn from this? First and foremost it
appears that both management and regulation of our industry have been largely
reactive rather than proactive in the advancement of the analytics side of
banking business intelligence. Core capabilities that enable modeling of
customer value and other key insights have trickled in over the years driven
not by our quest for insight, but by capabilities demanded by regulatory
requirements. We have not been brilliant business leaders exploring new frontiers
of insight for business advantage: we have actually been slow to exploit technology to
uncover business fundamentals.
NEXT: Out of distress.... insights
- Dave McNab
