Three effects of the financial crisis on bank's reporting and analysis requirements

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One of the greatest ironies of the 2009 global financial crisis is that the very forces that led to two decades of explosive growth in the financial-services sector—new markets, new businesses, and financial innovation—seem to have outpaced financial institutions’ ability to understand and report their financial and risk positions fully. The rising demand for swift, reliable reporting drawn from IT systems at the corporate, functional, and business unit levels is a major challenge at many banks.

Different colors of labels“By leveraging a consistently structured subledger, banks will be in a better position to enforce data management standards and increase overall data quality.”

1. Regulators and investors are demanding granularity, flexibility, and speed
Widespread uncertainty in the financial markets has led investors and regulators alike to seek new kinds of information and analyses in addition to more frequent reporting on risk exposure, liquidity, and capitalization. In the immediate aftermath of the financial crisis, many banks had to compress their reporting cycles to respond to regulators’ demands for liquidity reporting. Although the worst of the liquidity crisis has passed and regulators for the most part have eased liquidity reporting requirements, the sudden uptick in reporting requirements in the wake of the last crisis shows just how quickly reporting requirements can change—and how quickly banks must adjust complex systems and processes in order to meet them.

2. Internal decision makers are calling for more and different reporting
In many cases, internal decision makers are seeking to inform the judgment—both qualitative and quantitative—that forms the basis of operating decision making with information and analysis on risk. To accomplish this, finance and risk functions are working to generate reports uniquely suited to the business decisions that present themselves. Even as banks strive to make more and better use of risk information and analyses, regulators are paying close attention to the systems that banks are using to support their decision making and assess their risks.

3. Banks are meeting reporting demands, but at a cost
While banks are indeed meeting new and heightened reporting requirements brought on by the financial crisis, a lack of data alignment means that meeting these requirements often necessitates manual interventions and complex workarounds. Over time, confusion will likely resolve somewhat as both the producers and consumers of bank reporting learn to navigate a new reporting environment. Reporting requirements themselves may well ease to some degree as distress in the financial services industry gradually recedes. In the meantime, many global banks are applying valuable resources to mechanical data extraction, reconciliation, verification, and consolidation activities at a time when thoughtful analysis, reflection, explanation, and education are sorely needed.

Many banks say the remedy for this can be broken down into three overlapping activities:

1. Standardizing data: A least to the extent possible, this is an obvious starting point.

2. Alignment: Once data is standardized, information from across the organization can be brought into greater alignment so that functional areas and business units can access data from across the business for their respective purposes.

3. Automation: Improved alignment not only improves access but also eases verification and consolidation and can allow for greater automation of reporting.

More insights on what is happening:

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Banks’ Moving Target: Sourcing, Analyzing, and Reporting Data in Challenging Times.