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Does IBM have a fix for banking infrastructure?

IBM has released a banking framework to ease the transition to new systems. Besides helping sell more software, it can ease the pain of the financial industry.

In the year since the worst financial meltdown in modern history, many financial institutions are still seeking to identify the root causes of the crisis and develop new ways to re-invent their business processes to ensure that such an event can never occur again.

In addition to human error, over-reaching risk, and simple greed, there was a key technology component that has been overlooked by most reports. According to Bob Picciano, General Manager of IBM Lotus Software and IBM Collaboration, this technological fault was made up of two elements; the lack of corporate-wide computer program integration at most banks, and a complete lack of data transparency.

As a result of these shortcomings, not only were financial institutions unable to track or even to understand their overall risk position, but they lacked a single view of each trade or client in order to "triage" the crisis as it unfolded.

This is not an uncommon scenario and it's one that many pieces of software have tried to address via dashboard, portals, etc. But the systems need to have the right data in order to provide meaningful information.

Many banks are running applications that are older than the workers who use them--which is not necessarily wrong provided that these core systems can accommodate new ways to view and parse data.

Replacing a core banking system is akin to conducting a simultaneous heart and lung transplant on a patient that is still jogging. It's just not realistic. And, since banks can't afford to simply shut down their operations in order to transition to new applications, these vital upgrades were put on hold indefinitely.

Even as events were finally catching up to the banks across the globe, they still resisted replacing their aging core banking systems, despite the fact that the cost of maintaining these systems was becoming more and more prohibitive. For example, IBM research suggests that application and infrastructure maintenance can often account for as much as 85 percent of a bank's IT budget.

This is finally beginning to change. To help facilitate these global upgrades, as part of its Smarter Planet initiative, IBM is unveiling a new Banking Framework that will allow banks to effectively structure and integrate their applications and better manage their data.

The IBM Banking Industry Framework addresses four key areas that demand the majority of a banks attention and resources, providing a path to accelerate transformation, and system upgrade with an eye towards future needs and reduced project risk. The features of the framework include:

  • An integrated risk management domain to support a holistic approach to managing financial risk, operational and IT risk, financial crimes detection and prevention, and compliance.
  • The customer care and insight domain helps banks build a foundation for creating a single view of the customer and enabling more effective and efficient sales and service.
  • The payments and securities domain helps banks progressively transform their payments operations to become more flexible and efficient.
  • The core banking transformation domain allows banks to modernize and renovate existing systems that sustain core banking functions while aligning with the changing needs of the business.

Based on a mature model already used by more than 250 banks and 150 insurance companies, the framework provides a methodology for completing gradual core banking transitions on a step by step basis, rather than all at once.

It also has the fail-safe aspect of being based on a tried and tested method that not only reduces the risk inherent in any transition, but also allows easy standards-based integration with other systems the institution may decide to incorporate at a later date.

Follow me on Twitter @daveofdoom.