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Haldane giving evidence at the Parliamentary Commission on Banking Standards

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Haldane: No change is not an option. Fully 70% or 80% of the IT spend of the big banks currently is about the maintenance of legacy (antiquated) systems...
RBS saw the cost of having this a few weeks ago... The time is overdue for something of an IT transformation within the banking industry. It is peculiar that banking which is an information industry has not invested more wisely in IT to improve the customer proposition. Change needs to come. Maintaining legacy systems is costly and at some point will cease to be an option. There is no technological reason. Cost/benefit will promote radical change, not incremental change.

U.K. government plans to insulate consumer banks from future crises should be toughened and show less “flexibility,” said Andrew Haldane, the Bank of England’s executive director for financial stability.

The Independent Commission on Banking, led by Oxford University Professor John Vickers, in 2011 recommended banks separately capitalize and manage consumer banking activities to strengthen the financial system. The proposals have a “gray area” that may be manipulated by banks, Haldane told lawmakers.

“Flexibility in the context of the ring-fence is perilous,” Haldane said at the Parliamentary Commission on Banking Standards today. “I would personally prefer a somewhat clearer ring-fence, less gray zone, drawn in a somewhat different place than is the case currently.”

The first line of defence has to be risk management within the firm. We have seen a significant scaling up in both the resourcing and the influence of the risk management function in banks over the last 4 or 5 years... There are very few, if any, global banks who can conduct effective, consolidated, across-the-whole-balance-sheet risk management. Many of their systems simply make that if not impossible then certainly unsure. There is still work to be done to put IT systems and risk management systems on a wholly different footing that have been in the past. The systems are not in a state of health that allow this holistic across the balance sheet aggregation of risk. Of all the shocking things that I have come across in the last 4 or 5 years, among the most shocking, was the inability of the biggest banks in the world to simply add up the numbers. The IT spend that has occurred has tended to be focused on business lines. It hasn't allowed a joining up of data, core data, across the whole balance sheet. It is a pre-requisite to the essential building block of effective risk management. It does not exist at present in too many big firms.

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