Wall Street meltdown may drive risk-management investments

Competition, regulation after crisis likely to increase interest in technology to manage risk

There is almost universal recognition that further investment in risk-modeling is going to be needed in the wake of this week's turmoil, said Suzanne Duncan, financial markets industry lead for the IBM Institute for Business Value, a think tank that focuses on the financial industry.

In June, the Institute, in conjunction with the Securities Industry and Financial Markets Association (SIFMA), surveyed about 500 IT professionals in the financial market, including 200 from Wall Street firms, about their technology spending priorities amid all of the billion-dollar write-downs and consolidations.

At that time, most of those surveyed had surprisingly indicated that technology spending was unlikely to be reduced despite all the financial troubles, Duncan said. It's unclear how that view has been impacted by the developments over the last few days that lead to Monday's spectacular 777 point sell-off, she admitted.

The end of risk 'partitioning'?

But at a high level, there continues to be a heavy emphasis on tweaking risk management programs, for business reasons and to meet likely regulatory needs, she said. There appears to be a growing effort to enable a more holistic view of risk as opposed to segmenting risk into separate buckets such as operations risk, credit risk, equity risk and market risk, she said.

"You cannot partition risk any more," Duncan said. Increasingly, financial companies are aiming to integrate the different slices of risk to get a better understanding of their exposure to the sort of problems that led to the current crisis, she said. One area financial companies look likely to spend on is gaining a better understanding of the risk that one of the parties in a financial transaction will default, called counterparty risk.

IBM expects the focus on risk management will eventually drive significant interest in high-performance computer systems capable of crunching huge risk models and complex scenario analyses that are being envisioned. Where companies don't have the resources or the desire to buy such systems outright, they may either outsource such modeling or tap Service Oriented Architectures (SOA) for the computing horsepower.

Security vendors not left out

Meanwhile, security vendors selling compliance and regulatory control products also see a silver lining in the clouds now hanging over Wall Street. Their optimism reflects a broader feeling in the technology sector that it will remain largely immune from the turmoil in the financial sector.

Market leader Symantec, for instance, is predicting greater interest in some products it sells, such as its suite of data-leak prevention (DLP) tools.

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