Awareness of Total Financial Exposure

One of the largest challenges our clients in the banking industry have is knowing the total exposure they have to any company (or product line for that matter). Imagine the straight-forward question, “What is the total exposure we have to any company?” This is a very valid question that operational, credit, and risk managers would ask. It is also a hot topic for regulators when determining the financial stability of a company.

Let’s take an example from a government-sponsored entity (GSE) like a Federal Home Loan Bank (FHLBank). For illustration, we will use a large financial institution like Wells Fargo. We know that companies like Wells Fargo have multiple legal entities that roll up to the parent corporation, and that a GSE would conduct business with multiple entities, depending upon the nature of the business.

So, let’s ask the question, “What is our total financial exposure to Well Fargo?” A FHLBank has multiple lines of business used to obtain funding, deploy assets and hedge risks. To a FHLBank, the term broker or counterparty is used in the acquisition and hedging of debt. The term member is used to denote customers to whom advances are issued. Within the Banks different departments, and often different systems, are used to conduct daily business.

Without fail, we have seen that the Capital Market side of the business including brokers and counterparties are in one system, and the member side for advances are in other systems. Within the systems the individual companies are issued identifiers that are unique within that system. Typically, we will see Counterparty Number and Member Number as prevailing terms. There is no overarching master data management implementation that is leveraged by both systems, so the reality is that there are two sets of company identifiers.

To facilitate internal and external reporting, data from multiple systems are loaded to a data warehouse. The problem that we see is even though all transactions and balances are within the Data Warehouse, there is no way to programmatically link the exposure from “Wells Fargo the Counterparty” and “Wells Fargo the Member” together in a query. We would even go into the complexity of issuer, underwriter, holding company, etc. External identifiers like the SNL ID, Bloomberg ID, or Federal Tax ID are rarely used associate multiple occurrences of the same company into one query. In theory this made sense, but in practice the data was incomplete or just not available.

Treasury, Credit Risk, and Member Operations in a FHLBank know which entities are duplicated across systems. The problem is that there is no easy solution presented. Implementing Master Data Management is a costly and often doomed approach due to integration. So, the solution of choice to answer the question, “What is our total financial exposure to Wells Fargo?” is so often a spreadsheet.

MetaGovernance has solved this problem as part of our controlled governance approach to Data Warehousing. Our knowledge of FHLBank data, business operations, and governance has enabled a very workable solution that functions in conjunction with existing systems and Data Warehouses. The key is clear understanding of Data Ownership, the relationships within the data, and the data architecture that becomes the glue that binds the different views of the company. Contact us if you would like to understand this solution.