 Risk, Data and the Barcodes of FinanceAllan Grody ()
Journal of Financial Transformation, 2017, vol. 45, 136-157 Abstract: The failure of Lehman Brothers uncovered a shocking fact that after six decades of automation there are no global standards for the identity of financial market participants nor their financial products. Bankruptcy attorneys and forensic accountants tried to understand Lehman’s exposure to others and others’ exposure to Lehman. There was no consistency in identifying Lehman as a counterparty; no understanding of what relationships Lehman had with others; no mechanism to associate all of Lehman’s products and businesses into a total view of the exposure others had to Lehman should it fail. In effect, no one… not regulators nor creditors nor counterparties could see into Lehman’s exposure to risk. This paper illuminates a fundamental component of the financial system that goes largely unrecognized as a key pillar of finance, non-standardized financial transaction data. Financial transactions lack unique, universal and unambiguous identifying codes for the supply chain of financial market participants and the products they manufacture, issue, own, process, and trade. Imagine if every supermarket had a different barcode for the same product on its shelves or a different code for the producer or supplier of the product. Walmart, FedEx and Amazon could not exist. This failure has exasperated researchers, analysts, financial institutions and regulators who are forced to map and scrub this data before aggregating financial transactions for performance, risk and regulatory reporting. Considerable risks, costs and delays in receiving payment are inherent in this reconciliation process. This paper explores the history, current status, issues, work yet to be done, and recommendation by the author to create financial industry identity standards. The Barcodes of Finance will enable an automated means to aggregate risk data so firms can reduce risk and costs, and regulators can oversee the largest systemically important global financial firms. Keywords: Barcodes; Data Management; Risk Management; Enterprise Risk; Systemic Risk; Financial Crisis; Standards; LEI; UTI; UPI (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1596 Access Statistics for this article Journal of Financial Transformation is currently edited by Prof. Shahin Shojai More articles in Journal of Financial Transformation from Capco Institute 77 Water Street, 10th Floor, New York NY 10005. |
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