Welcome to the fifth edition of Risk Perspectives, a Moody’s Analytics publication created for risk professionals, with the goal of delivering essential insight into the global financial markets.
“Data is the very lifeblood of every bank. It’s a shame how little attention is paid to it,” a central bank’s representative told me recently. As any form of effective risk management requires powerful analytics, a robust infrastructure and – above all – reliable data, this observation sheds light on a problem that has already severely impacted the financial services industry, and stands to impact it further.
For years, supervisors and industry experts have raised concerns about the weak data management practices prevalent in many banks, from poor data quality to fragmented data infrastructure to non-existent data governance. But nothing really changed until the Basel Committee on Banking Supervision published its Principles for Effective Risk Data Aggregation and Risk Reporting in January 2013, forcing banks to enhance their data management for good.
Given this development in the market, we decided to dedicate this edition of Risk Perspectives™ to data management.
As mentioned above, data management comprises many aspects. With this in mind, we have invited subject matter experts from Moody’s Analytics to share their experiences and discuss diverse aspects of data management. As with our first four editions, this issue of Risk Perspectives™ offers actionable information to assist risk professionals in their day-to-day efforts to comply with new regulatory guidelines, master data management and infrastructure questions, and create value for their organization through better and more effective risk management.
In the section Rethinking Risk Management, we discuss how banks can benefit from stronger data management, an absolute necessity for effective risk management. We also show how banks and insurers can improve their data quality and ultimately gain better insight into the risks to which they are exposed. In Getting Human Data Right: The Hidden Advantage, Kevin Hadlock writes about how banks often neglect the human side of their operations, and can better manage risk arising from employee knowledge and skill.
Banking regulations are increasingly quantitative and data-driven. In Regulatory Spotlight, we look at key initiatives, such as BCBS 239 and the European Central Bank’s analytical credit dataset (AnaCredit), and discuss the regulatory challenges presented by PPNR and CCAR/DFAST.
The Approaches to Implementation section discusses how to design a robust data governance process. It also sheds light on data management in Asia-Pacific and in structured finance.
In the final section, Principles and Practices, my colleagues describe the impact of better data management on a bank’s operations – including how data supports critical business decisions, the impact of data quality on credit risk modeling and stress testing, and the ways in which a loan origination process benefits from better data quality. In Modeling Techniques and Tools in Scenario-based Risk Appetite Management, Pierre Gaudin writes how regulatory stress testing requirements are increasingly guiding financial institutions toward scenario based-governance and risk appetite management.
I am sure that our perspectives on the challenges and benefits of robust data management will help you better understand how to address poor data quality, fragmented data infrastructure, and weak data governance in your own organization, and ultimately improve your risk management system to build a more competitive business.
I encourage you to take part in this discussion and help us shape future issues of Risk Perspectives by sharing your feedback and comments on the articles presented in this fifth edition.
Dr. Christian Thun
Senior Director, Strategic Business Development