Algorithmics Risk Conference 2012, Risk 360 – Lessons from Day One
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Data is the oil of the 21st century, and analytics is the combustion engine.
Les Rechan, General Manager, IBM Business Analytics said it first in his opening address, “Data is the oil of the 21st century.” In no field is this truer than in risk and financial services. Rechan certainly wasn’t the last to make this powerful statement. Throughout the morning, speaker after speaker explained this new fundamental truth.
The volume of digital data in 2011 totaled 1.8 zettabytes, and that number is growing exponentially, explained Sarah Diamond, General Manager of Global Consulting Services for IBM, during her plenary address.
Dr. Michael Zerbs, President of Algorithmics, an IBM Company, and Vice President of IBM Risk Analytics, explained how, according to the IBM IBV / MIT Sloan Management Review Study 2011, 58 percent of organizations said they are using analytics as a competitive advantage. These organizations are 220 percent more likely to outperform their peers. There is no doubt: Analytics-driven organizations outperform. This is the thesis of Smarter Analytics.
In risk management, becoming a true analytics-driven organization requires a focus on the whole enterprise in order to fully optimize outcomes. See how Algorithmics, an IBM Company is helping its Banking, Financial Markets, Insurance and Asset Management clients achieve this in enterprise stress testing here, and in enterprise credit management here.
Regulatory Compliance is insufficient to be successful in Financial Services.
Dr. Laura Kodres, Division Chief for the Global Financial Stability Division in the Monetary and Capital Markets Department of the International Monetary Fund, argued in her plenary address that simply meeting the Liquidity requirements of Basel III is not enough. Systemic liquidity risk was at the heart of the financial crisis, and nothing in Basel III addresses the role played by 'non-banks' in systemic liquidity risk, not to mention the relationships between them. (Dr. Kodres was careful to note that these are her own opinions and not necessarily those of the IMF).
Earlier in the day Dr. Zerbs alluded to the same argument, stating that higher capital requirements alone do not make the financial system more stable. Firms must be cognizant of the ‘unintended consequences’ of regulatory reform. And, in order to not only significantly mitigate a firm’s risk exposure, but further enhance its performance, organizations must transform business models.
Embracing analytics for risk-aware decision making transforms business models.
Gone are the days of risk management in ‘silos.’ It is absolutely essential that financial services organizations embed risk analytics in decision making processes. This requires vertical integration – bringing risk-aware decision making from the back-office to front-office – and a holistic view across risk types, such as market risk, credit risk, liquidity risk and operational risk.
Firms must capture the intrinsic linkages across risks and asset classes, and ensure consistency across business lines in order to succeed. And, risk intelligence must be weaved into the fabric of the business – this is what Dr. Zerbs meant when he discussed brining risk out of the back-office.
If you can optimize outcomes at the point of impact, for example with real-time decision support in the trading desk, you can enable action based on risk insights. That is the essence of Smarter Analytics, and the mission of IBM Risk Analytics for the Financial Services Sector. It is also how IBM Risk Analytics intends to become essential in Financial Services.
Watch all the action.
To access the full suite of coverage from Day One at ARC 2012: Risk 360, register here to watch the replay of the Livestream coverage from our May 8, 2012 plenary sessions.
Join us again tomorrow via Livestream using the same registration link to hear further insights from Algorithmics and IBM at 9:10 am UK. The May 9, 2012 plenary sessions have a particular focus on how Algorithmics and IBM are working together to leverage each other’s strengths in both technology and services.
And, don’t forget to follow @IBMRisk on Twitter and the event at #ARCRisk360 on May 9, 2012 for more coverage by-the-minute, including links to additional resources on our various topics.