Information Systems and the Financial Crisis:
Is technology to blame?

The11th Social Study of ICT workshop (SSIT11) at LSE

Monday 28 March 2011

Hong Kong Theatre, LSE

SSIT11 home page
SSIT11 programme
 

Abstracts

Risks and opportunities of incomplete information
Elena Esposito
The financial crisis is primarily a crisis of the management of future and of information, which requires a revision of both concepts. The information available is always incomplete, but this incompleteness can be seen as an opportunity and not just a problem: it is the index of an open future, which cannot be known but can be used in the present. The theory of social systems offers the distinction between present future and future present in order to describe how the information available at any given time tends to falsify itself later, even and precisely if it is correct.


Mortgaged Future: IT’s Supporting Role in the Real Estate Finance Crisis
M. Lynne Markus
Many causes of the global financial crisis have been identified, including socio-economic trends, government intervention or lack of regulation, and gambling, greed, or fraud. Did information technology play a role in the mortgage meltdown? This presentation examines how IT—in the form of electronic data exchange, data and business process standards, electronic mortgage registration, modelling and automated decision-making, and complex IT-enabled financial products—may have contributed to the crisis and what this means going forward.


Information systems and their role for the financial risk management process in dynamic markets
Roman Beck
Beyond the rising volume of financial data, the continuing evolution of complex derivatives and indices, along with new regulations designed to contain risk and protect markets and investors, all create more operational demands on financial risk management. Especially in the context of systemic market risk evaluation it is mandatory to have access to accurate and most recent entity and instrument reference data. One of the problems of the financial crisis was a discrepancy between two essential capabilities: the ability to execute transactions and the ability to comprehend the implications of the transactions being executed. IT departments within financial institutions were able to deliver “millisecond information flows” for real-time processing of transactions. However, they could not support counter-party credit risk calculations at speeds to match the transactions. Quite often, the necessary back-end enterprise IT infrastructure is not capable to process and calculate operative risks in real-time, wherefore information systems such as Grid provide possible solutions. Based on a survey among more than 300 CIOs and senior IT managers of financial institutions in North America and Europe conducted in autumn 2009 we investigated the drivers of Grid assimilation and its impact on risk management processes. We especially focused on the role of C-level managers, how they are influenced by the turbulences in the financial market and how the decision to assimilate Grid technologies has improved their risk management processes.


Hunting the black swan? Complexity and risk management systems in the financial crisis
Rob Kauffman
The recent financial crisis affecting the global economy has created vexing challenges for senior managers, risk specialists, policy economists and government leaders to understand what happened. Some observers have pointed out that the complexity of financial markets in the United States was largely responsible for the creation of “imaginary wealth,” based on the illusion of prosperity in a world of computer-generated derivatives. Other observers have suggested more fundamental issues. They include: failed oversight and regulation; the concentration of wealth and the need to support the middle class with too much credit; ignorance of the collateral impacts of subprime mortgage lending and portfolio insurance; and the lack of understanding of mounting problems due to extensive management “misinformation” associated with financial accounting practices and financial risk management systems. The weight of the current evidence points toward the critical roles of inappropriate assumptions about the sources of risk and a mismatch between current approaches to measurement and risk controls amidst the complexity of the dynamic systems in the financial economy. My assessment of the contribution of financial risk management systems to the financial crisis is based on systems thinking and economic complexity. I will demonstrate that although we may have thought we were hunting the “black swan” of devastating financial risk, we were actually raising it. I will also offer some observations on the limits of systems-based financial risk management based on additional retrospective analysis of systems complexity.

Impact of the financial turmoil on information technology at ECB
Magí Clavé
IT at the European Central Bank has embarked on an extensive restructuring over the last couple of years to adapt to the changing environment. High on the ECB agenda has been the successful roll out of the Euro and the transformation of the Eurosystem to gain maximum efficiency. IT was crucial in achieving that goal and has been an important tool to enable the transformation project. Good governance, strong delivery capabilities and excellent processes have been some of the key elements to guaranteeing smooth transition and stability. The sudden onset of the Financial Crisis has meant that IT has had to react quickly and effectively to cope with unexpected requests and deliver timely solutions.

Before, during and after the financial crisis: lessons and insights from the technology front-line
Stephen Norman
The world needs a strong and vibrant financial services industry. An industry reformed from the past and helping facilitate the economic recovery of the future. Was Technology to blame for the Financial Crisis, or was part of a wider problem? Stephen Norman will give a personal view of the relationship between Technology and the financial markets and will identify the developments and events that led to the crisis, and lessons to be learned from it. He will conclude by identifying the challenges that Technology needs to embrace if it is going to play a key role in the recovery.

A Note on the Round Table
The aim of the Round Table is an open discussion of the main points made by the speakers, in which all participants of the seminar who wish to do so will have the opportunity to pose questions and express their views. The emphasis will be put on questions regarding the practical and research implications. Parallel to the ongoing discussions on changes in the organization of banks and in the financial architecture, there is a need to think about changes in information system architectures or in network dynamics from which the enactment of technologies in the financial services emerges. Can the understanding of the co-evolution of ICT and Financial Services influence our views on the relationship between ICT and financial stability; or on regulatory measures; or on the impact of the markets for new ICT products and services on technological and organizational changes in the financial sector? Can changing views of bankers and of other key players in the financial markets contribute to a cognitive turn? What can be the role of the information systems developers and managers in this context? What can bankers, regulators and ICT-specialists expect from academic research in information systems?

page last updated 14 February, 2011