Technology is a strategic tool that many organizations utilize in complex decision making. However, not all financial services companies have fully leveraged the potential of storage and search technology. An optimized storage solution can contribute to more informed and timely decision making in the FSI sector.

Learning from the Past
One of the primary contributing factors of the recent financial crisis was the lackadaisical approach to the implementation of the Basel II regulatory framework across lending institutions.With cash available in abundance, investment banks and mortgage lenders undertook risky lending practices in providing mortgage finance to low income individuals at ‘honey-moon’ interest rates. There was no capital penalty to act as disincentive for these mortgage lenders as the Basel II risk weighting methods for mortgage lending weren’t applicable as yet.

Because of the inherent loan default risk, these sub-prime borrowers were forced to also take out mortgage insurance to protect the lending institutions. This enabled the lenders to bundle and securitize these mortgages as Mortgage Backed Securities (MBS) to be traded in the Collateralized Mortgage Obligations (CMO) market.

To make matters worse, since the Basel II capital adequacy directive allows to be held as Tier 2 capital, many of the international retail, commercial and investment banks did just that, buying up sizable chunks of these CMOs in support of their capital adequacy, entangling even more institutions into what was to become a financial quagmire.

How can storage solutions prevent future occurrences?
The biggest issue for all banks holding CMOs was the inability to ascertain which CMOs contained the MBSs that included the new suburbs at risk of devaluation and mortgage default. Given the rate and volume of transactions, there was no time to set up specialized Data Warehouses with the right extracted data and the robust analytical scrutiny to quickly establish which CMOs contained these toxic assets.

In retrospect, industry players could have leveraged solutions which allows for adhoc searches within stored/archived data to find documents with specific embedded information. In this case, CMO-related documents could have been searched for suspected ‘toxicity’ using suburb and/or zip code as search criteria.
Another option would be the creation of a virtualized storage environment.

By utilizing a third-party search tool, the same adhoc search could be achieved across the entire storage array. Such capabilities would have helped banks by providing them with crucial data on time to make informed business decisions.

Srinivas Rao is Director, Pre-Sales and Solutions, Hitachi Data Systems , India