Dear,
In my opinion, one of the key documents for understanding the current financial crisis is the paper “Has Financial Development Made the World Riskier?”, by the current Governor of the Reserve Bank of India and former Chief Economist at the International Monetary Fund; Mr. Raghuram Rajan.
http://www.nber.org/papers/w11728.pdf?new_window=1
In his paper, Mr. Rajan warned that Bank's executives were encouraged to take risks which could have catastrophic consequences for the financial system.
Mr. Rajan published his paper in 2005 receiving a negative response. Just two years later, his vision was proved to be prophetic, with the explosion of the financial crisis.
Capital consumption is a consequence of Risk, when we determine the Capital consumed by an Investment; it comes from its Counterparty Risk (Risk Weighted Assets) and its Market Risk (Value at Risk). Saying that bank’s executives are encouraged to take risk, means that the Financial System is oriented to consume capital.
Some of the most critical dangers described by Mr. Rajan’s paper are still present in the current Financial System; some decisions towards a more stringent regulation have been taken, but we’re at the very beginning of the process.
For instance, the current liquidity injections of the Central Banks are feeding the next financial crisis, or more exactly, they are just delaying the systemic consequences of maintaining an exhausted Financial System based in volume and oriented to capital consumption.
Read carefully last June's speech of the General Manager of the Bank for International Settlements, Mr Jaime Caruana; “Making the most of borrowed time”
https://www.bis.org/speeches/sp130623.htm
When the borrowed time is over, we’ll see the real consequences of the current systemic crisis as the Financial System moves from a model based in Volume to a model based in Efficient Capital Management.
The new regulation, Basel III, IFRS, Dodd-Frank, European Market Infrastructure Regulation and others that will come are just the driver of the Systemic Change.
Managing this community for more than 5 years has given me the opportunity of contacting and exchanging opinions with many people; some of them are Bankers, or IT Managers of Banks. In general, they’re concerned by the new regulation and the capacity of their IT infrastructure for providing the regulatory reports.
Some weeks ago, I had the opportunity of discussing about Bank Analyzer with an executive of a medium size Bank which is considering the implementation of Bank Analyzer, or some of its competitors, Oracle, Sunguard, etc.
He asked me a very intriguing, but also interesting question.
Why should my Bank implement Bank Analyzer, when other competitors offer less complex systems that also support IFRS and Basel III?
My answer; Bank Analyzer is complex because is the most complete modelization of the reality, and as the reality is complex, Bank Analyzer has to be complex.
If you believe that the new regulation is just a temporary fashion you will not understand the competitive advantages of Bank Analyzer. But if you think that the Financial System is in the middle of a Systemic Change, you will appreciate an IT infrastructure which can help your Bank in the biggest challenge it has confronted in decades.
Happy 2014 to everybody, it's going to be interesting.
Looking forward to read your opinions.
K. Regards,
Ferran.
In my opinion, one of the key documents for understanding the current financial crisis is the paper “Has Financial Development Made the World Riskier?”, by the current Governor of the Reserve Bank of India and former Chief Economist at the International Monetary Fund; Mr. Raghuram Rajan.
http://www.nber.org/papers/w11728.pdf?new_window=1
In his paper, Mr. Rajan warned that Bank's executives were encouraged to take risks which could have catastrophic consequences for the financial system.
Mr. Rajan published his paper in 2005 receiving a negative response. Just two years later, his vision was proved to be prophetic, with the explosion of the financial crisis.
Capital consumption is a consequence of Risk, when we determine the Capital consumed by an Investment; it comes from its Counterparty Risk (Risk Weighted Assets) and its Market Risk (Value at Risk). Saying that bank’s executives are encouraged to take risk, means that the Financial System is oriented to consume capital.
Some of the most critical dangers described by Mr. Rajan’s paper are still present in the current Financial System; some decisions towards a more stringent regulation have been taken, but we’re at the very beginning of the process.
For instance, the current liquidity injections of the Central Banks are feeding the next financial crisis, or more exactly, they are just delaying the systemic consequences of maintaining an exhausted Financial System based in volume and oriented to capital consumption.
Read carefully last June's speech of the General Manager of the Bank for International Settlements, Mr Jaime Caruana; “Making the most of borrowed time”
https://www.bis.org/speeches/sp130623.htm
When the borrowed time is over, we’ll see the real consequences of the current systemic crisis as the Financial System moves from a model based in Volume to a model based in Efficient Capital Management.
The new regulation, Basel III, IFRS, Dodd-Frank, European Market Infrastructure Regulation and others that will come are just the driver of the Systemic Change.
Managing this community for more than 5 years has given me the opportunity of contacting and exchanging opinions with many people; some of them are Bankers, or IT Managers of Banks. In general, they’re concerned by the new regulation and the capacity of their IT infrastructure for providing the regulatory reports.
Some weeks ago, I had the opportunity of discussing about Bank Analyzer with an executive of a medium size Bank which is considering the implementation of Bank Analyzer, or some of its competitors, Oracle, Sunguard, etc.
He asked me a very intriguing, but also interesting question.
Why should my Bank implement Bank Analyzer, when other competitors offer less complex systems that also support IFRS and Basel III?
My answer; Bank Analyzer is complex because is the most complete modelization of the reality, and as the reality is complex, Bank Analyzer has to be complex.
If you believe that the new regulation is just a temporary fashion you will not understand the competitive advantages of Bank Analyzer. But if you think that the Financial System is in the middle of a Systemic Change, you will appreciate an IT infrastructure which can help your Bank in the biggest challenge it has confronted in decades.
Happy 2014 to everybody, it's going to be interesting.
Looking forward to read your opinions.
K. Regards,
Ferran.
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