15 Jul

This year has seen a few banking fiascos. TSB had a multi-day outage during a migration, VISA lost connectivity for an extended period and the good burghers of Deutsche Bank managed to let a single payment out that was greater than the value of the firm.

What are the implications of the regulators looking at errors? Beyond the headlines, the pain is likely to be severe and long-term. Why? OpRisk and Basel Pillar 2. 

Historically, OpRisk has been quite significant; 10% of all risk capital vs, 5% for market risk and 85% for credit risk. 

Pillar 2 is very tricky piece of the puzzle. It is subjective and imposed until proven otherwise. Those involved in the fiascos are on a hiding to nothing. If I was the regulator I would be asking whether there was an adequate procedure and it was not followed or whether the procedure was adequate. 

In the case, of TSB, was there enough testing, was there a Plan B, or a roll-back allowed for? In the case of VISA, what happened to back-up systems? In the case of DB, why did such a large payment not get stopped during the approval process. Or was the process inadequate?

Lessons to be Learned

Either way, the end result should be the same. More temporary capital required for OpRisk unless and until the errant institutions can demonstrate improvement. 

As anybody who has been in a bank for more than 5 minutes will tell you, there is ‘owt so permanent as a temporary solution.

That is why Operational Process is worth paying attention too. Having your Banker’s Plumber identify and fix the leaks is worth a lot more than you might think. Every $1B in capital will cost between $5mm and $15mm per year. Even at the low end, $5mm is the equivalent of 100 offshore staff. 

Back to basics.

About the Author: The Bankers’ Plumber. I help banks and FinTechs master their processing; optimising control, capacity and cost.

If it exists and is not working, I analyse it, design optimised processes and guide the work to get to optimal. If there is a new product or business, I work to identify the target operating model and design the business architecture to deliver those optimal processes and the customer experience.

I am an expert-generalist in FS matters. I understand the full front-to-back and end-to-end impact of what we do in banks. That allows me to build the best processes for my clients; ones that deliver on the three key dimensions of Operations: control, capacity and cost.

Previous Posts 

Are available on the 3C Advisory website, click here. 

Publications

The Bankers’ Plumber’s Handbook

Control in banks. How to do operations properly. 

For some in the FS world, it is too late. For most, understanding how to make things work properly is a good investment of their time.  

My book tries to make it easy for you and includes a collection of real life, true stories from 30 years of adventures in banking around the world. True tales of Goldman Sachs and collecting money from the mob, losing $2m of the partners’ money and still keeping my job and keeping an eye on traders with evil intentions.  

So you might like the tool kit, you might like the stories or you might only like the glossary, which one of my friends kindly said was worth the price of the book on its own.  Or, you might like all of it. 

Go ahead, get your copy! 

Hard Copy via Create Space: Click here 

Kindle version and hard copy via Amazon: Click here 

 

 

 

 

 

 

Cash & Liquidity Management

An up to date view of the latest issues and how BCBS guidance that came into force from Jan 1 2015 will affect this area of banking. Kindle and hard copy.

Hard Copy via Create Space: Click here

Amazon UK: Click here

Amazon US: Click Here