Does IBM have a fix for banking infrastructure?

In the year since the worst financial meltdown in modern history, many financial institutions are still seeking to identify the root causes of the crisis and develop new ways to re-invent their business processes to ensure that such an event can never occur again.

In addition to human error, over-reaching risk, and simple greed, there was a key technology component that has been overlooked by most reports. According to Bob Picciano, General Manager of IBM Lotus Software and IBM Collaboration, this technological fault was made up of two elements; the lack of corporate-wide computer program integration at most banks, and a complete lack of data transparency.

As a result of these shortcomings, not only were financial institutions unable to track or even to understand their overall risk position, but they lacked a single view of each trade or client in order to "triage" the crisis as it unfolded.

This is not an uncommon scenario and it's one that many pieces of software have tried to address via dashboard, portals, etc. But the systems need to have the right data in order to provide meaningful information.

Many banks are running applications that are older than the workers who use them--which is not necessarily wrong provided that these core systems can accommodate new ways to view and parse data.

Replacing a core banking system is akin to conducting a simultaneous heart and lung transplant on a patient that is still jogging. It's just not realistic. And, since banks can't afford to simply shut down their operations in order to transition to new applications, these vital upgrades were put on hold indefinitely.

Even as events were finally catching up to the banks across the globe, they still resisted replacing their aging core banking systems, despite the fact that the cost of maintaining these systems was becoming more and more prohibitive. For example, IBM research suggests that application and infrastructure maintenance can often account for as much as 85 percent of a bank's IT budget.

This is finally beginning to change. To help facilitate these global upgrades, as part of its Smarter Planet initiative, IBM is unveiling a new Banking Framework that will allow banks to effectively structure and integrate their applications and better manage their data.

The IBM Banking Industry Framework addresses four key areas that demand the majority of a banks attention and resources, providing a path to accelerate transformation, and system upgrade with an eye towards future needs and reduced project risk. The features of the framework include:

• An integrated risk management domain to support a holistic approach to managing financial risk, operational and IT risk, financial crimes detection and prevention, and compliance.
• The customer care and insight domain helps banks build a foundation for creating a single view of the customer and enabling more effective and efficient sales and service.
• The payments and securities domain helps banks progressively transform their payments operations to become more flexible and efficient.
• The core banking transformation domain allows banks to modernize and renovate existing systems that sustain core banking functions while aligning with the changing needs of the business.

Based on a mature model already used by more than 250 banks and 150 insurance companies, the framework provides a methodology for completing gradual core banking transitions on a step by step basis, rather than all at once.

It also has the fail-safe aspect of being based on a tried and tested method that not only reduces the risk inherent in any transition, but also allows easy standards-based integration with other systems the institution may decide to incorporate at a later date.

Follow me on Twitter @daveofdoom.

[alegr]

How about an attitude change? Like getting rid of "screw you all" bankers' mentality? It won't be achieved by technology. Can be somehow forcibly induced by legislative measures.

[odubtaig]

If you look at what caused the meltdown, most if not all of what caused it had previously been barred by legislation put in after the depression which was removed piece by piece from the '90s onwards. Early failures like Enron and Worldcom could at the least have been mitigated in their effects or taken over and fixed if the law that accounts auditing must be performed by an unrelated outside party had still been in place. Yes, they audited their own accounts without any outside scrutiny. Go figure. The extension of how much financial institutions were allowed to loan, from 3x their actual holdings to 9x, to 27x and the kind of trading in loans that had no real financial backing were also recent developments which were previously barred and the core of the banks' collapse.

Of course, a lot of bankers made a lot of money out of this while governments borrowed billions to rescue people's life savings and they're the one's always calling for deregulation claiming it will benefit all of us but how anyone not at the top of the food chain can look at the result of such deregulation as still be calling for 100% free markets is beyond me only in the sense that it's beyond me how anyone can be that thick and still walk upright.

[SlingBlade99]

Is this as scary as it seems to me for anyone else? Sounds to me like they are laying down the foundation to integrate the data systems of every single financial institution in the world into one so there will ultimately be one system to decide the what each institution can do with our money. So who exactly is defining all the requirements for this system that IBM is planning on implementing, or is it IBM themselves? Who ever it is, by planning this infrastructure, they are effectively taking control of every last financial institution in the world without even having to aquire them all under one name, like they are creating a one world bank in disguise.

This is a huge undertaking! I mean, IBM has already proven they will take on any project for a profit, no matter how evil the ends. We're talking about the same company that engineered the entire automation infrastructure that made the holocaust such a success. Seriously, from tracking religion and lineage in the censuses to tracking the cargo and keeping the trains running on schedule.

History may not repeat itself, but it sure does rhyme.

[Bud246]

SlingBlade - I think you are a little bit of a conspiracy theory nut. First, this article talks about a framework for A bank and using that framework and model to incorporate data to allow executives to have better insight into their business. It is not about linking all of the banks together (though they already are....) under one master, it is about standardizing the data to allow easier access for analytics and insight into transactions to try and prevent fraud. Second, your accusation on the holocaust is a taken out of context, IBM did not 'engineer' the holocaust, if you truly read the research you will see that IBM's equipment was used and that Hitler's regime had taken control of many U.S. companies that had operations overseas, including IBM. The tabulators were used in the holocaust that IBM used (correct), but IBM hardly collaborated and architected the holocaust. They have already made all of their information and records from that time period public knowledge. One book written to sell copies and make money by accusing IBM of being a major player in the holocaust does not make it so. Or do you also still believe in Santa Claus and little green men who do things to uranus?

[johnfranks1234]

It's the culture. Read "I.T. WARS: Managing the Business-Technology Weave in the New Millennium." It saved us. It SAVED us. Google "IT WARS"