WHAT IS BEING DONE TO PREVENT ANOTHER
FINANCIAL CRISIS?
Fill regulatory gaps
The crisis revealed major gaps in regulation. Historically, depository institutions such as banks were most at risk from financial shocks and Сdisruptive panics. To reduce the risk, the Federal Deposit Insurance Corporation guaranteed that depositors would be paid back. In exchange, banks faced the toughest regulation and oversight. In recent decades, however, a "shadow banking system" developed that involved a variety of иfinancial firms, securities, and markets. The system replicated core features of banking, including funding longer-term loans and securities using shortterm liabilities that are assumed to be highly liquid and safe. In the crisis, the less rigorously regulated shadow banking system was vulnerable to panics and provedбАto be a major source of credit-market disruption. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 aims to remove gaps in regulation by basing oversight on the function of the firm and its risk to the economy. The Act creates a Financial Stability Oversight Council to keep an eye on overall risks to the financial system and the broader economy.
The act also extends authority to the Federal Reserve to regulate all systemically important financial institutions, even those that are not banks.
Establish suitably heightened prudential standards
Enhanced regulatory requirements aim to stabilize the economy by ensuring that systemically important financialДfirms are better able to weather severe market downturns. During the pre-crisis boom years, firms that wanted to increase lending reduced their standards and made riskier loans. They financed these loans with borrowed funds and then packaged and sold the loans to investors across the financial landscape. When the financial crisis occurred, investors were unsure who was exposedИto the questionable loans. And they feared that many institutions lacked sufficient shareholder funds to protect against losses. As a result, investors began demanding their money back. Debt-laden firms were forced to sell assets quickly. The prices of these assets plunged, creating a vicious cycle and deepening the crisis. The new financial reform reduces this risk by requiring large, complex financial companies to operate with more appropriate levels of shareholder capital, liquidity, and risk.
Emphasize a macro-prudential perspective
The most telling lesson of the crisis has been the need to promote safe and sound practices in the financial system as a whole. Regulators need to focus not just on individual firms but on the entire interconnected system. The financial reform legislation mandates that regulators adopt this sort of macroprudential perspective. It empowers them to act when the practices of an
121
institution (or group of institutions) create risks for the financial system. Understanding this risk requires that regulators collect accurate and up-to- date information on how global financial firms are interconnected. They must also investigate threats from a firm's exposure to common risks. The macroprudential approach includes oversight of key components of the global financial infrastructure, such as the payments and clearing systems, which
Сhad significant weaknesses that made the financial crisis more severe.
Limit destabilizing failures
To reduce the potential systemic threat to the financial system and broader
economy, the legislation requires larger and more interconnected firms to
иThis makes such transactions more transparent to market participants and regulators and provides greater assurance that contracts will be honored even
hold more shareholder capital as a buffer against losses. The so-called
Volcker rule restricts the extent to which banks can use federally insured
funds for speculative trading and other risky investments. The new law also
shifts many complex financial instruments called derivatives onto open
failing financialбАinstitutions that weren't banks or thrifts in ways that protected the financial system. RegulatorsДnow have new authority to take over and close failing nonbank financial institutions in the same way the
exchanges rather than being privately negotiated between trading partners.
if a counterparty fails. Finally, the reform restricts the Federal Reserve's
ability to bail out individual institutions. This signals to financial companies
and their shareholders and creditors that they will bear the cost of risks that
lead to big losses.
During the financial crisis, federal regulators lacked the tools to close large,
FDIC can take over failing banks. The reform act also requires that firms create "living wills" or "funeral plans," which explain how they could be shut
down in a rapid and orderly way if they fail. If an institution cannot come up with a credible plan, it will face financial penaltiesИand constraints on its
activities. This new framework seeks to ensure that failure of a nonbank financial institution doesn't ignite financial panic, and that shareholders and creditors, not taxpayers, bear the costs.
INFORMATION TECHNOLOGIES
HOW CAN IT HELP YOUR ORGANIZATION
MAKE BETTER, FASTER DECISIONS?
Market conditions and customer demands shift, and it’s your people who are in the best position to react accordingly. Your organization needs to have an accurate and actionable 360-degree view of the enterprise. Real-time visibility provides a means to verify and justify results, as well as full
122
confidence that your company is leveraging the right information at the right time to make better, faster decisions. With the right IT personnel and infrastructure, small and medium companies can respond quickly and effectively to changes in the market.
If you want to help your company create an accurate and actionable 360-degree view of your organization that allows you to make better, faster
Сdecisions, you can jump-start the process by following three steps.
Step 1 – Asses your current business environment and it infrastructure
Management should perform a health check of its business activities and IT infrastructure. Your management needs to understand where the organization is, where it needs to go, and what IT systems are needed to get there. Management also needs access to real-time information to ensure that departmental activities are in line with corporate objectives. Management
и2. provide the necessary analytics and reporting tools to conduct a gap analysis to determine what the
should look to IT to help the organization:
requirements.бАMore importantly, this can hamper management’s ability to
1. extract the relevant business information to provide a clear overview of the company’s current health;
company is doing and what it needs to do; and
1. create a framework to document a performance plan and review, including desired results, measures and standards.
Step 2 – Establish a common set of metrics across your company
The use |
of different metrics, terms, and standards can impair the |
organization’s |
Д |
ability to communicate effectively and meet compliance |
aggregate information to create a unified view of all the company’s critical business information. Management should look to IT to help the
organization: |
И |
1. get buy-in from key internal and external stakeholders on what to measure and how to measure it;
2. develop key performance indicators (KPIs) across your company that can assist management in making informed business decisions; and
3. design analytics and reporting tools to provide quick access to the right information, tailored to the appropriate stakeholders’ needs.
Step 3 – Execute the plan
Management should determine what needs to be done and then deploy the right resources to the right activities. To achieve corporate goals, management needs insight into its best opportunities and its most effective resources—and how well it is using them. Here, IT serves as the engine to analyze and report all business opportunities and activities and give management the overall visibility to allocate resources in the most effective manner. Specifically, IT should help the organization:
123
1. capture and organize relevant business information so it can be quickly and easily accessed whenever needed;
2. unlock key business information so that management can make informed decisions regarding the effective allocation and utilization of resources and investments; and
3. create a collaborative environment to monitor, manage, and analyze Сprogress against corporate goals.
иIs it dead or alive? This 40-year-old programming language often appears in
There are some things in life, like good manners, which never go out of style, and there are other things, like clothing styles that fall in and out of
fashion, but when an IT skill falls out of favor, it rarely ever comes back. Here’s our list of 10 dying IT skills. If any of these skills are your main expertise, perhaps it’s time to think about updating your skill set.
oriented architectureбАto “transform legacy applications and make them part of a fast and flexible IT architecture.”
10. COBOL
lists of dying IT skills but it also appears in as many articles about
organizations with legacy applications written in COBOL having a hard time
seeking workers with COBOL skills. IBM cites statistics that 70% of the
world’s business data is still being processed by COBOL applications. But how many of these applications will remain in COBOL for the long term?
Even IBM is pushing its customers to “build bridges” and use service- Д
9. HTML
We’re not suggesting the Internet is dead but with the proliferation of easy to
use WYSIWYG HTML editors enabling non-techies to set up blogs and Web pages, Web site development is no longer aИblack art. Sure, there’s still a
need for professional Web developers (see the ColdFusion entry above for a discussion about Java and PHP skills) but a good grasp of HTML isn’t the only skill required of a Web developer. Professional developers often have expertise in Java, AJAX, C++ and .Net, among other programming languages. HTML as a skill lost more than 40% of its value between 2001 and 2003, according to Foote Partners.
8. SNA
The introduction of IP and other Internet networking technologies into enterprises in the 1990s signaled the demise of IBM’s proprietary Systems Network Architecture. According to Wikipedia, the protocol is still used extensively in banks and other financial transaction networks and so SNA skills continue to appear in job ads.
124
But permanent positions seeking SNA skills are few and far between. ITJobsWatch.com noted that there were three opening for permanent jobs between February and April, compared to 43 during the same period last year. Meanwhile, companies such as HP offer consultants with experience in SNA and other legacy skills such as OpenVMS and Tru64 Unix for short-
term assignments.
СSiebel was synonymous with customer relationship management in the late ‘90s and early 2000s, and the company dominated the market with a 45% share in 2002. Founded by Thomas Siebel, a former Oracle executive with no love lost for his past employer, Siebel competed aggressively with Oracle
7. Siebel
Siebel is one skill that makes a recurring appearance in the Foote Partners’ list of skills that have lost their luster.
иmanage. That model lost out to the new breed of software-as-a-service (SaaS) packages from companies such as Salesforce.com that deliver comparable software over the Web. According to the U.K.’s ITJobsWatch.com
until 2006 when it was ultimately acquired by the database giant. Siebel’s
extreme programmingбАdevelopment philosophies resulted in quicker and more flexible programming that embraced the ever changing needs of
complex and expensive CRM software required experts to install and
site, Siebel experts command an average salary of GBP52,684 ($78,564), but
that’s a slide from GBP55,122 a year ago. Siebel is ranked 319 in the job research site’s list of jobs in demand, compared to 310 in 2008.
6. RAD/Extreme Programming
Back in the late 1990s and early 2000s the rapid application development and
customers during the development process. In XP, developers adapted to changing requirements at any point during the project life rather than attempting to define all requirements at the beginning. In RAD, developers
accelerated software development. Although the skills were consistently the highest paying in Foote Partners survey since 1999, they began to lose ground in 2003 due to the proliferation of offshore outsourcing of applications development.
embraced interactive use of structured techniques and prototyping to define |
|
Д |
|
users’ requirements. The result was |
И |
|
|
5. ColdFusion
ColdFusion users rave that this Web programming language is easy to use and quick to jump into, but as many other independent software tools have experienced, it’s hard to compete with products backed by expensive marketing campaigns from Microsoft and others. The language was originally released in 1995 by Allaire, which was acquired by Macromedia (which itself was purchased by Adobe). Today, it is superseded by Microsoft
.Net, Java, PHP and the language of the moment: open source Ruby on Rails.
125