Risk, Data Transparency and the MBS Market
March 17, 2010
I spent the morning yesterday over at the FIMA USA event in New York, and caught the panel discussion chaired by Neil Edelstein of GoldenSource. Stand out speakers were Amy Hawkins of BNY Mellon and John Bottega of the Federal Reserve.
Neil started the panel by asking the panel for their thoughts on the current drive to improve "data management for risk". Transparency and quality were mentioned a lot unsurprisingly, with John Bottega adding that he was aware that a lot of banks were now focussed on the data that in the past had been "not available" for risk management, not just the quality of data that is readily accessible. All panelists focussed on the need to manage risk across the whole institution, not just by product silo.
On the topic of data standards and transparency, John referred the audience to testimony on the Mortgage Backed Securities (MBS) market presented to the US Government by the XBRL group. Apparently the filing process for mortgages allows free format filing and so is of little use from an automated processing point of view. John also pointed out that a key piece of data in assessing risk is that the "first time buyer" flag was found to be present in only 15% of the filings.
John also mentioned that if loans and mortgages could be given standard identifiers, then this would enable new levels of risk management – for instance it should be able to extract those obligations against a specific region that for example is experiencing economic recession. These would be the benefits of getting data standards in place.
As was later expanded upon in a later talk by Kay Vicino of Northern Trust, there was a lot of panel discussion on organisational data governance and the management structures needed to achieve it. On the governance side of things then whilst it is not an exciting topic, it is obviously vital – main point seems to be establishing data ownership and responsibilities which brings me back to the point that a lot of (most?) data management issues are down to managing people and organisational politics, not just down to good technology (although it helps!).
Overall a reasonable panel, and the XBRL testimony looks worth a more detailed read (if the testimony link doesn't work then go to the www.xbrl.org site and search for a report called "Using Standards for Transparency")