BI Gone Bad: Banks' Greed Trumps Technology

Ann All

IT Business Edge blogger Loraine Lawson wrotean interesting post yesterday in which she wonders whether better business intelligence might have helped avoid -- or at least lessen the impact of -- the current financial mess.


She cites one of her favorite sources, Joe McKendrick, who recently wrote a column referencing an Economist Intelligence Unit survey. Forty-four percent of the respondents, all financial services executives, identified quality of data and timely access to it as a key challenge in implementing enterprise-wide risk management. Perhaps a combination of operational BI and complex event processing could have helped financial institutions identify early risks to their loans and securities, posits McKendrick.


Maybe. But I don't think timely access to data was the problem. Though a few financial institutions may have been naive enough or misinformed enough to be unaware of the risks to which they were exposing themselves, I think many of them willfully chose to take on investments they knew were risky and then try to foist them off on others.


In fact, many financial institutions employ BI to make risky decisions -- albeit ones that can make them money. As reported by the New York Times, credit bureaus like Experian and other providers create highly detailed financial profiles of American consumers with sophisticated tools that pull data from a myriad of sources, including court records. Banks purchase the profiles and use them to create targeted credit offers, many of them geared toward people who have no business getting lines of credit.


An Equifax executive tells the Times that the mortgage industry turned to Equifax to help find new prospects for some of their more "creative" loans. In addition to names of prospects, pre-sorted into categories like "Oodles of Offspring" and "Midlife Munchkins," companies like Equifax use predictive modeling to determine which consumers are more likely to take on debt.


According to Experian, it's the banks' responsibility to use its data responsibly. Says Peg Smith, the company's executive vice president and chief privacy officer:

The whole reason companies like Experian and other information providers exist is not only to expand the opportunity to sell to consumers but to mitigate the risk associated with lending to consumers. It is up to the bank to keep the right balance.

Therein lies the rub. The best BI tools in the world cannot force people to make the right business decisions. I do agree with one of the points in McKendrick's column that he attributes to InfoWorld's Ephraim Schwartz: Technology in the financial services sector has been so focused on efficient transaction handling that it has neglected process management. Schwartz wrote: "There is no process flow map that tells organizations who owns what pieces of what risk."

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Oct 28, 2008 7:53 AM Kingsley Idehen Kingsley Idehen  says:
I do think the void between "Closed World" and "Open World" technologies played a vital part re. the inability to "connect the dots" by all key players (government officials and executives).Standard BI doesn't solve the problem, neither do the plethora of conventional "Closed World" MDM (Master Data Management) or EII (Enterprise Information Mangement) Tools. The reason for my assertion is simply this: traditional "Closed World" enterprise applications aren't capable of transperently exploiting "Open World" data sources (relevant data outside the enterprise e.g., on the Web).Sadly, as the Semantic Web vision continues to appear to most, as a technology solution looking for a problem; we continue to incur the opportunity costs of not being able to "connect the dots" across "Closed World" and "Open World" realms. 24 months ago their was more than enough chatter in financial blog spaces about the impending problems associated with sub-prime loans, mortgage backed securties, and credit default swaps etc.. Unfortunately taking the chatter and translating that vital information into actionable data (i.e asset and portfolio reevaluations) across existing systems was, and is, a challenge that requires a different approach to data access, integration, and management.Like all things, a combination of technology and people could have alleviated the problem :-)Links:1. Idehen Reply

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