Bank of England: Proper data tagging still urgently needed to stop institutions collapsing

Bank trades still lack proper, consistent data tagging that would enable regulators to detect stress signs and help prevent financial institutions from collapsing, according to a top Bank of England official.

Andy Haldane, the Bank of England's director for financial stability, said there were so many different data forms still in use that it was very difficult to ascertain risk.

The problem remained in spite of numerous financial observers stating, since the economic collapse, that data was often too complex for regulators to spot problems emerging.

Haldane's calls back those from G20 leaders who have said banks each need to have a unique code known as a legal entity identifier (LEI), so their trades and other activities can be quickly identified.

"Missing inventories and mistaken counterparties could be all but eliminated if financial firms' information systems spoke in a common tongue," said Haldane.

He said "failures in data infrastructure and aggregation", highlighted at collapsed bank Lehman Brothers, were in fact "endemic across the financial industry".

"The experience of global supply chains and the web tell us there is no technological constraint on real-time measurement and management of financial inventories by even the largest firms," he added. "Where Wal-Mart has led, Wall Street could follow."

Haldane added that technology would likely remove "middle men" in banking and make processes simpler. "With open access to borrower information, held centrally and virtually, there is no reason why end-savers and end-investors cannot connect directly. The banking middle men may in time become the surplus links in the chain."

Copyright © 2012 IDG Communications, Inc.

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