Deutsche Bundesbank: More IT investment vital to meet data challenges

Data sheet

Banks must increase investment in IT to comply with tougher regulations, a senior Deutsche Bundesbank executive has said.

Dr Joachim Nagel, member of the Executive Board at the German central bank, warned that significant changes must take place as European banks cope with the new Single Supervisory Mechanism (SSM).

Under this, the European Central Bank will directly oversee Europe's 120 largest banks. For the 3,600 "less significant" institutions across Europe, oversight will lie with national authorities. This means roughly 1,700 German institutions will still be subject to ongoing supervision by the Bundesbank.

From an IT perspective, the SSM will entail new work processes as well as changes in the exchange of information and reporting channels, Dr Nagel explained at the Handelsblatt conference on banking technology.

He stressed that while there is plenty of talk around a regulation ‘tsunami’ hitting banks, the problem lies with the technology systems in place to handle various reporting requirements.

“With all sympathy for the great challenges that the banks are facing, we should not forget why these demands arose,” he said. “They were due to sometimes glaring errors in developments and to a lack of meaningful possibilities of analysing the data that existed at the banks - both before the crisis and to this very day.”

IT at most banks, inspections by the Bundesbank show, is suffering from data not being collected and maintained in accordance with uniform standards, while there are only limited automated facilities for analysing it. “Risk silos exist,” warns Dr Nagel.

This issue is all the more important in light of BCBS 239, the first “globally coordinated, specific regulatory requirements for the architecture of risk and data management”. In other words, with the latest risk data requirements affecting first G-SIBs and later other banks, there is a need for the IT department to take stock now and plan. This will “require considerable input in terms of human resources and technology”, advises Dr Nagel.

Simply the sheer volume of data is a problem that requires attention. For example, a tenfold rise in volume is expected for harmonised solvency and financial data, while institutions' reports of large exposures exceeding €300 million could contain up to 200 MB of data per submission.

He concluded: “Banks need to invest in their information technology. The implementation of supervisory requirements will tie up considerable resources and entail costs.

“Regulatory projects reduce operational risk, permit a better and faster assessment of risks and possible courses of action. This can, in turn, diminish operating costs and offer a crucial competitive edge.”