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December 9, 2013

Global financial crisis fuelled by technology failings

Technology couldn’t keep up with the increasingly complex nature of the industry.

By Amy-Jo Crowley

The 2008 financial crisis happened because technology infrastructure failed to keep up with the computational demands of the financial sector, a whitepaper released by technology providers has found.

A more holistic approach in future risk evaluations across the derivates market is essential if banks are to reform and regain efficiency, according to the research by Global Valuation and Supermicro.

Claudio Albanese, CEO at Global Valuation, said: "Five years on from the biggest economic collapse in living memory, our research shows that the crisis did not occur because the global financial system was passing around too much risk, but because the supporting infrastructure couldn’t keep up with the increasingly complex nature of the industry.

"Derivatives are essential to the economy and here to stay. What’s needed is a new way to understand the future evolution of massive OTC (over-the-counter) portfolios with a large number of transactions and credit counterparties. There also needs to be an appreciation of how the combination of market and credit risk plays out."

The white paper called for an end to monolithic grid infrastructure, preferring instead in-memory architectures, based on large heterogeneous systems that allow analysis of entire global OTC portfolios without the need to split them up across compute nodes.

Dev Tyagi, UK General Manger at Supermicro, said: "By gaining a global view of risk using powerful super computers and risk analytics, it will be possible for banks to pass around substantially more risk, but with that risk properly managed. The ideal long-term strategy entails transitioning from distributed grids to high-performance appliances. In-memory global portfolio processing on individual servers leads to much faster, cost effective and more efficient solutions."

The white paper also revealed a lack of communication between IT, traders and quantitative analysts (quants) and discussed how business leaders must connect business objectives to technology infrastructure
.

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