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Turning information into action: Good data and good analytic software enable bankers to make good decisions and take action before events turn into a crisis

I have a semi-serious, poker-playing friend with whom I spent this past Friday night. (Small stakes—don’t worry, the kids’ Christmas is still safe). I’m reminded of one hand in particular as I read the economic news coming out of Russia, where central bankers made a 1am move to shore up the ruble, and are now watching the aftermath of what is very possibly too little too late. Like a central banker bumping interest rates from 10.5% to 17%, my semi-serious friend had pushed all his chips into the center of the table betting on everybody else to fold. Well, central banking against sanctioners with deeper pockets has to be a lot like going “all-in” against a table full of guys with both bigger stacks as well as nothing to lose, and the last card turned one of those hands into a straight flush, and it was all over—my buddy’s full house notwithstanding.

Best I can tell, according to his fulminations, is that the bluff should have worked. I imagine his experience was much like Russian central bankers watching Russians continue to sell rubles regardless of relative interest rates. There’s no guarantee the last card is going to turn any stake into a pot of gold, but if you’re in the game, it’s clear you need to see as much of what might be coming as possible, as early as you can, so your stack doesn’t turn into somebody else’s in an instant. The worst part is that families will be devastated by everything that comes next. Getting this right matters. (For more on this, you can read Buttonwood's column in this week's Economist).

The fourth V: Volume + Velocity + Variety = Value

In pursuit of better information, the advent of “Big Data” has given bankers access to more data than they’ve ever had before. The continuing pace of technical innovation has even given rise to the tools necessary to sift through it. The Economist Intelligence Unit (EIU) recently completed a survey of global banking risk and compliance executives, drawing some fascinating conclusions on how big data can help banks manage risk. The challenge? Of bankers surveyed, “4 in 10 (38%) say that they face difficulties in deriving actionable information from existing risk data”.

The paper delves into examples given by the survey respondents that illustrate how new approaches, like leveraging unstructured data, can unlock value previously hidden by existing risk databases. The key? “Big data is often characterized by the so-called ‘three-Vs’ of volume, velocity and variety. But this terminology may obscure a fourth V—value. “ The report also highlights the benefit of a centralized approach that may be missing in many banks’ current risk projects, when working to turn insight into action.

Overall, the name of the game has to be keeping as many of your chips as possible on your side of the table. When information is out there, what can possibly be the value of failing to analyze it? The costs of remaining in the dark are all too clear.

To read more, take a look at the findings, and see what you think. Before you make your bets, it makes sense to take a peek at as many of the cards as you can, doesn't it?