Adler on Data Governance
From archive: April 2009 X
ComplianceWeek covered the XBRL Risk Taxonomy Forum Meeting in NY last week with an excellent article enclosed here.
It is a longer article, but this is from the front page:
Using XBRL to Attack Systemic Risk
By Todd Neff — April 7, 2009
Already hard at work making Security and Exchange Commission filings interactive, XBRL technology now finds itself at the heart of plans to save the U.S. financial system from future calamity.
A group of risk-management leaders in the financial industry has begun studying how XBRL might bring clarity and transparency to the murky world of financial risks, much the same way Corporate America has just begun using XBRL to bring more clarity to financial statements.
While any such system is a long way off, proponents say the technology is tailor-made to help regulators (and investors) root out hidden threats to corporate balance sheets before they, well, break the bank. XBRL could, for example, let a regulator peer through a bad debt line item and see the individual loans feeding it; that task would take hours of spreadsheet diving today.
But XBRL could also do much more. Steven Adler, director of IBM Data Governance Solutions, says the computer language provides a standard vehicle for regulators to track not only weeks-old summary data, but also financial positions accruing across many banks and market segments. That would shed more light on systemic risks—which, left unchecked, can bring financial calamity of the sort we’re witnessing today.
Any potent XBRL-based scheme to report risks, however, would require the reporting of daily financial positions, a major shift in how trading firms, hedge funds, and investment banks do business. To that end, Adler’s IBM Data Governance Council is spearheading a movement that would change how investment banks and hedge funds interact with regulators.
“At this point, everybody is aware change is coming,” Adler says. “And parties would rather be in the room together talking about common solutions.”
A speech Federal Reserve Chairman Ben Bernanke delivered last month shows him to be in agreement. Bernanke advocated taking a “macro-prudential” approach to risks that are “cross-cutting,” affecting many firms and markets or concentrating in unhealthy ways. It would involve “monitoring large or rapidly increasing exposures—such as to sub-prime mortgages—across firms and markets.”
You can read the full article here.
On February 26-27, I hosted an XBRL Risk Taxonomy Forum in NY at The Levin Institute in which we explored the concepts of operational, market, and credit risk. Through interactive discussions, we looked at how those concepts could be articulated in an XBRL Taxonomy and what benefits regulatory authorities and market participants could derive from new key risk indicator monitoring. We looked at the ORX example of Operational Risk loss event reporting and saw how 50+ existing banks are sharing operational loss data to better trend individual losses and learn x-industry loss patterns.
And on the last day, we explored positional reporting as a key risk indicator of market crowding and bubble formation. One outcome of the meeting was a call for a followup meeting to review the ORX example in greater depth and explore both existing risk reports and sources of positional data.
On April 23, we will meet again at the Levin Institute to focus more deeply on the ORX data model, an examination of existing regulatory reporting, and positional reporting options from Swift and DTCC.
The work will be done in English – no XML – to make it easy for everyone to participate. Our goal is to answer some fundamental questions:
1. Is the ORX data model sufficient for Operational Risk reporting on a national level?
2. What is the right business model for Operational Risk reporting and who should maintain the taxonomy?
3. What kinds of key risk indicator data are already collected by financial regulators that are either not used on a systemic basis or not shared across the government?
4. What is the most efficient method for collecting end of day/week positional data?
- from market participants directly?
- via clearing and settlement firms?
5. What should be the role of a semantic repository in the construction of risk reporting taxonomies?
6. How should the regulatory authorities build and maintain regulatory taxonomies?
7. How should the world maintain semantic consistency between many regulatory taxonomies?
8. What should a 21st Century Regulatory Information Architecture look like?
We can't possibly answer all of these questions in one day, but we can begin an informed dialog and encourage global participation - No one else is addressing these issues and I think we can make a difference doing so.
I look forward to seeing you on April 23rd.