REWARD – RISK TRADE OFF IN LEVERAGING BANKING TECHNOLOGY
By
V. K. Sharma 1
I deem it a privilege and an honor to be addressing today this very learned and discerning audience comprising representatives from public, private, co- operative, foreign banks and technology companies. To be frank, I am no authority on, or expert in, Banking Technology and, therefore, if anything, I feel humbled to have been invited to deliver this Keynote Address today. I must heartily compliment and congratulate Ernst and Young on conceiving,designing and organizing this contextually and topically very appropriate and relevant Summit. I am also very pleased to note that the Banking Technology Summit 2013 today has a very comprehensive agenda featuring contemporary and futuristic business and technology challenges in such critical areas as Technology Adoption, Business Continuity Plan (BCP) and Disaster Recovery (DR), Risks, Regulation, Mobile Banking, Cloud Computing etc. I shall, therefore, confine my address to shining light on, and sensitizing, and alerting, this discerning audience to, rewards, downside risks and costs of leveraging banking technology. Significantly, if this discerning audience has not
---------
1 The Keynote Address delivered by Mr. V. K. Sharma, Advisor, Edelweiss Financial Services Ltd and former Executive Director, Reserve Bank of India , at the Banking Technology Summit 2013, organized by Ernst & Young, at Mumbai, on 17th April 2013. The views expressed are those of the author only.
already noticed the reverse sequence viz ‘Reward – Risk’ as against the more standard ‘Risk- Reward’, customary in finance theory and practice , I have a very cogent reason for why I have chosen to do so. And this is that in finance theory and practice, it is financial risks that are deliberately, and consciously, assumed for earning financial rewards/ returns whereas, when it comes to leveraging technology it is exactly the opposite i.e. it is ‘Reward’ that is chosen almost entirely for its own sake and ‘ Risk’ follows ! I do hope to illuminate this presently as I proceed with my keynote address.
2. Given the extensive, and widespread, financial exclusion in the country, both the Government of India and the Reserve Bank, decided to put financial inclusion,including as its key component, the recent roll out of Direct Benefit Transfer (DBT) in select districts, on the top of their policy and strategy agenda. As part of this veritable watershed policy and strategy initiative, the Government and Reserve Bank enjoined upon Scheduled Commercial Banks and Regional Rural Banks to roll out, in a time- bound manner, Board – approved, Top – Management- owned, business- plan- integrated, mission – mode- driven and Government & RBI- monitored , BC-ICT-CBS (Business Correspondent- Information & Communication Technology- Core Banking Solution) – leveraged Financial Inclusion Plans for last mile access to, and delivery of, a bouquet of basic financial services in the hitherto financially – excluded rural areas. But I must hasten here to add that the idea is not to compete with, but complement, rural and agricultural cooperatives in their ever critical and central ‘niche’ role in delivering on financial inclusion !
But having said that, as regards the national challenge of delivering, credibly and effectively, on financial inclusion agenda, it would be very instructive to put in perspective the relative potential of the rural co- operative credit structure. Specifically, considering that compared to Commercial Banks and Regional Rural Banks (RRBs), which, between them, currently account for 33,000 rural branches, 31 State Co-operative Banks with 953 branches, 371 District Central Co-operative Banks (DCCBs) with 12,858 branches and 109,000 Primary Agricultural Credit Societies (PACS) between them, account for a total of 122,590 service outlets , the penetrative outreach of the command area of the rural co-operative structure is simply formidable ! Indeed, it is precisely because of this formidable penetrative outreach of the rural co-operative structure that the Reserve Bank of India has not only allowed PACs to act as Business Correspondents of Commercial Banks but also allowed treatment of loans by Commercial Banks to farmers through PACS, Farmers’ Service Societies (FSS) and Large – sized Adivasi Multipurpose Societies (LAMPS) as priority sector lending in indirect finance category. Although under the Financial Inclusion Plan initiatives, Commercial Banks and RRBs will, through both brick and mortar branches, and business correspondents, provide banking outlets in around 350,000 out of 600,000 odd villages by 2013, it is because of the huge potential and promise that the rural co-operative credit structure represents for financial inclusion that the Government and Reserve Bank of India thought it fit to revive the financially hemorrhaged Short- Term Co-operative Credit Structure (STCCS) by setting up the Vaidyanathan Committee and accepting its comprehensive recommendations for implementation in a business-like manner. Between them, these mission- critical, watershed and game changing epochal policy superventions hold the veritable promise and potential to upscale the reach and penetration of the banking system to the next level in a never - before manner, paving the way for a viable, profitable yet fair, sustainable, credible and above all, inclusive credit delivery architecture for last- mile access to, and delivery of, basic financial services in the hitherto unbanked/ under – banked rural and semi urban areas of the country. Based on the recommendations of the Vaidyanathan Committee and after reaching consensus with Chief Ministers, Finance Ministers and Cooperation Ministers of States, Government of India decided to provide massive financial assistance (since revised to Rs. 19,330 crores( Rs. 193 Billion) from the originally estimated Rs. 13,596 crores ( Rs. 136 Billion)) to the financially hemorrhaged Short Term Co-operative Credit Structure but also, only appropriately , made it conditional upon rigorous, and stringent, compliance with, and progress on, pre- specified critical parameters like, inter alia, computerization. Indeed, if only to take this forward, rural cooperative institutions have been enjoined upon to be fully CBS (Core Banking Solution)-compliant by 30th September 2013 !
3. In delivering credibly, and effectively, on a national agenda as challenging, formidable and onerous as the foregoing, you will readily agree with me that leveraging technology is a sine qua non and this, therefore, provides the most appropriate and fitting backdrop, and context, to today’s Summit which has been organized not a day too soon.
4. Having seen the imperative and inevitability of this seminally critical role of leveraging technology in banking, it would only be instructive and value -adding to consider the business model of a typical safe, and sound, bank. A bank is typically characterized by relatively high financial leverage, which, in turn, is measured by what is known as Equity Multiplier (EM), which, in turn, is nothing but total assets of a bank divided by its common equity/ shareholder funds. Multiplying this leverage (EM) by what is called Return on Assets (ROA) gives Return on Equity (ROE) for a bank. Typically, safe and sound, banks have had historically an average ROA of about 1% and a reasonably safe EM of about 15, implying an average equilibrium ROE of about 15%. In the recent period, the Indian Banking System has had leverage of about 13 to 14 times. In this context, another key financial parameter is what is known as Net Interest Margin (NIM) which is the difference between interest earned and interest expended as a percentage of a bank’s assets. For Indian Banks, NIM has varied between 2.5% to 3.5%. If we deduct ROA from NIM, we get what can be called Non Interest Cost of Intermediation. In fact, it is this critical parameter viz (NIM-ROA) which can be controlled by leveraging technology. All else being equal, technology leverage in a bank can typically significantly reduce this non interest cost by delivering humanly impossible exceptional speed, efficiency and volumes in banking transactions and, therefore, for a given NIM, increase ROA, or for a given ROA, ROE and EM, significantly reduce NIM and thus borrowing costs for bank customers. In the first case, higher ROA and hence ROE enhance shareholder value, making the bank less risky and thus reducing equity risk and deposit insurance premia and potentially keeping taxpayers out of harm’s way. Thus, either way, Technology Leverage (TM) delivers value to all stakeholders viz, shareholders, uninsured depositors, borrowers, taxpayers, in particular, and the real economy, in general. As this discerning audience will readily see, this is where leveraging banking technology can, and does, make a significant difference in terms of costs and time savings by providing speed, efficiency and huge volumes. It is also interesting to note that banks are special because of their intermediation role in the real economy and that is why they are allowed by public policy and regulators higher leverage. More specifically, higher leverage for banks is critical to efficient and effective monetary transmission because higher leverage means banks’ relatively higher reliance for their lending to the real economy on non- equity interest rate sensitive deposit liabilities which is typically the key target variable of monetary policy. To have an incontrovertible, and conclusive, sense of this proposition, this learned audience only needs to consider the extreme hypothetical case of banks having an Equity Multiplier (EM) of 1. This, as the discerning audience will readily see, will mean ROE = ROAx1 and if this be, say 15%, the borrowing costs to the real economy will be 15% + even if the applicable policy rate is 1% as banks’ lending will be entirely funded by interest insensitive equity ! In other words, monetary transmission will be completely clogged. But since higher leverage is a double edged sword, it increases, through leverage multiplier, both profits and losses and, therefore, needs to be handled with care. This, in turn, is ensured by effective regulation and supervision of banks for uninsured depositors and deposit insurance for small depositors. In particular, as this learned audience is aware, in delivering equilibrium market competitive return on equity, banks assume financial risks such as credit, interest rate, foreign exchange risks etc. While assuming financial risks directly contributes to financial returns, technology risks do not contribute incremental returns directly but only indirectly by, as I have observed above, cutting non interest costs/ expenses through cost and time savings and very high speed, efficiency and volumes, although risk of loss is contributed exactly in the same manner as financial risks (i. e. loan and marked to market loss provisions). By now, to my mind, we are ready to reckon with what I would call the Technology Multiplier (TM) or Technology Leverage. Almost exactly like financial leverage in a bank, Technology Leverage also signifies potential downside risks to ROA and, therefore, ROE. But in combination with the already inherent financial leverage, Technology Multiplier (TM) and Equity Multiplier (EM) make for what I would call ‘leverage on leverage’ or ‘super leverage’ like options on futures and derivatives on derivatives ! This is attested to by recent infamous technology glitches/snags at Royal Bank of Scotland (RBS) and Lloyds Banking Group. As this learned audience might be aware, RBS is paying about USD 200 million in compensation to its 17 million technology - disenabled customers due to a massive technology meltdown which locked them (customers) out of their accounts for three weeks ! This has also made the recently established Financial Conduct Authority (FCA) – successor to Financial Services Authority- take the unusual step of announcing an enforcement investigation which may likely result in huge fines in addition. Another example of a technology glitch is that of Lloyds Banking Group’s ‘Faster Payments’ designed to ‘speed up’ cash transfers going slow after it was hit by a glitch delaying wage and bill payments and as regards the relatively recent but mushrooming credit card frauds , less said, the better. If only to complete the Technology Leverage/ Multiplier backlash story, one cannot but refer to the recent case of Knight Capital which went belly up due to a USD 440 million loss in a matter of less than 45 minutes - literally USD 10 million per minute, and that too ‘involuntarily’ -because of a technology glitch in its High Frequency Trading (HFT) algorithm system. This simply meant that it was not humans but ‘Technology’ that was in complete control and command for it is humanly impossible to lose $440 million in 45 minutes through what was a preposterous ‘buy high- sell low’ algo- trading ! The sheer speed of Algo-trading left just no response time for just- in time human intervention. This is simply because Technology Leverage/Multiplier being symmetrical also ‘saves’ time in reverse during a backlash, delivering losses in multiples as it delivers benefits/ cost savings in multiples of speed and volumes !! In other words, while technology is not infallible as humans are not, because Technology Multiplier/ Leverage is multiple of that of humans, losses due to its fallibility are multiples of humans’ failure. However, here I must hasten to caution that even if humans, unlike Technology Multiplier/ Leverage, do not have leverage, unethical and rogue traders/ executives in banks can, and do, piggyback ride Technology Leverage as indeed illustrated umpteen times in the past by the egregiously unedifying cases of the Nick Leesons and Jerome Kerviels ! Be that as it may, high frequency trading, based on complex algorithms, is trading by computers and not by humans. The long and short of this very elaborate overview of the downside risks of technology is to alert, and sensitize, this discerning audience to the very real and extreme risks which leveraging technology can expose banks to and, therefore, the ‘Technology Leverage’ can make a huge difference to Return on Assets (ROA) and, therefore, Return on Equity (ROE), thus having adverse consequences not only for the shareholders of banks but also other stakeholders such as uninsured depositors, deposit insurers, borrowers and unsecured creditors by significantly raising equity , credit and deposit insurance premia and in the extreme case, threatening systemic financial stability with potential implications of taxpayer - funded bailouts.
5. To conclude, my purpose was to alert, and sensitize, this learned and discerning audience to the upside potential and downside risks of the so -called Technology Multiplier (TM), a close cousin of the well known Equity Multiplier (EM) and no more, no less. If only to recapitulate, since Leverage is just as profit/ upside agnostic as indeed it is loss/ downside agnostic when it comes to multiplying them both, it is imperative to vertically integrate fail- safe technology systems with robust, credible and reliable BCP and DR backstops. To paraphrase Einstein, “Technology is a good servant, but a bad master.” Therefore, the key in leveraging technology in banking is humans being in control, command and on top of technology and not the other way around. My message today is that we need to resist the temptation of cutting corners when it comes to investing in technology in- house as opposed to mindless, indiscriminate and injudicious outsourcing driven and motivated only by considerations of cutting costs to the bone at any cost ! In conclusion, having hopefully done a good job of the easier part of ‘why’ it must be done , I leave the not -so- easy- part of ‘what’, and ‘ how’ it, must be done to the very redoubtable Technology Experts, Practice Leaders, Operations Heads and Senior Technology Process and Solutions Experts assembled here ! With these words, I close my keynote and wish the Summit all success it so very much deserves ! Thank you all so very much indeed.
-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x
By
V. K. Sharma 1
I deem it a privilege and an honor to be addressing today this very learned and discerning audience comprising representatives from public, private, co- operative, foreign banks and technology companies. To be frank, I am no authority on, or expert in, Banking Technology and, therefore, if anything, I feel humbled to have been invited to deliver this Keynote Address today. I must heartily compliment and congratulate Ernst and Young on conceiving,designing and organizing this contextually and topically very appropriate and relevant Summit. I am also very pleased to note that the Banking Technology Summit 2013 today has a very comprehensive agenda featuring contemporary and futuristic business and technology challenges in such critical areas as Technology Adoption, Business Continuity Plan (BCP) and Disaster Recovery (DR), Risks, Regulation, Mobile Banking, Cloud Computing etc. I shall, therefore, confine my address to shining light on, and sensitizing, and alerting, this discerning audience to, rewards, downside risks and costs of leveraging banking technology. Significantly, if this discerning audience has not
---------
1 The Keynote Address delivered by Mr. V. K. Sharma, Advisor, Edelweiss Financial Services Ltd and former Executive Director, Reserve Bank of India , at the Banking Technology Summit 2013, organized by Ernst & Young, at Mumbai, on 17th April 2013. The views expressed are those of the author only.
already noticed the reverse sequence viz ‘Reward – Risk’ as against the more standard ‘Risk- Reward’, customary in finance theory and practice , I have a very cogent reason for why I have chosen to do so. And this is that in finance theory and practice, it is financial risks that are deliberately, and consciously, assumed for earning financial rewards/ returns whereas, when it comes to leveraging technology it is exactly the opposite i.e. it is ‘Reward’ that is chosen almost entirely for its own sake and ‘ Risk’ follows ! I do hope to illuminate this presently as I proceed with my keynote address.
2. Given the extensive, and widespread, financial exclusion in the country, both the Government of India and the Reserve Bank, decided to put financial inclusion,including as its key component, the recent roll out of Direct Benefit Transfer (DBT) in select districts, on the top of their policy and strategy agenda. As part of this veritable watershed policy and strategy initiative, the Government and Reserve Bank enjoined upon Scheduled Commercial Banks and Regional Rural Banks to roll out, in a time- bound manner, Board – approved, Top – Management- owned, business- plan- integrated, mission – mode- driven and Government & RBI- monitored , BC-ICT-CBS (Business Correspondent- Information & Communication Technology- Core Banking Solution) – leveraged Financial Inclusion Plans for last mile access to, and delivery of, a bouquet of basic financial services in the hitherto financially – excluded rural areas. But I must hasten here to add that the idea is not to compete with, but complement, rural and agricultural cooperatives in their ever critical and central ‘niche’ role in delivering on financial inclusion !
But having said that, as regards the national challenge of delivering, credibly and effectively, on financial inclusion agenda, it would be very instructive to put in perspective the relative potential of the rural co- operative credit structure. Specifically, considering that compared to Commercial Banks and Regional Rural Banks (RRBs), which, between them, currently account for 33,000 rural branches, 31 State Co-operative Banks with 953 branches, 371 District Central Co-operative Banks (DCCBs) with 12,858 branches and 109,000 Primary Agricultural Credit Societies (PACS) between them, account for a total of 122,590 service outlets , the penetrative outreach of the command area of the rural co-operative structure is simply formidable ! Indeed, it is precisely because of this formidable penetrative outreach of the rural co-operative structure that the Reserve Bank of India has not only allowed PACs to act as Business Correspondents of Commercial Banks but also allowed treatment of loans by Commercial Banks to farmers through PACS, Farmers’ Service Societies (FSS) and Large – sized Adivasi Multipurpose Societies (LAMPS) as priority sector lending in indirect finance category. Although under the Financial Inclusion Plan initiatives, Commercial Banks and RRBs will, through both brick and mortar branches, and business correspondents, provide banking outlets in around 350,000 out of 600,000 odd villages by 2013, it is because of the huge potential and promise that the rural co-operative credit structure represents for financial inclusion that the Government and Reserve Bank of India thought it fit to revive the financially hemorrhaged Short- Term Co-operative Credit Structure (STCCS) by setting up the Vaidyanathan Committee and accepting its comprehensive recommendations for implementation in a business-like manner. Between them, these mission- critical, watershed and game changing epochal policy superventions hold the veritable promise and potential to upscale the reach and penetration of the banking system to the next level in a never - before manner, paving the way for a viable, profitable yet fair, sustainable, credible and above all, inclusive credit delivery architecture for last- mile access to, and delivery of, basic financial services in the hitherto unbanked/ under – banked rural and semi urban areas of the country. Based on the recommendations of the Vaidyanathan Committee and after reaching consensus with Chief Ministers, Finance Ministers and Cooperation Ministers of States, Government of India decided to provide massive financial assistance (since revised to Rs. 19,330 crores( Rs. 193 Billion) from the originally estimated Rs. 13,596 crores ( Rs. 136 Billion)) to the financially hemorrhaged Short Term Co-operative Credit Structure but also, only appropriately , made it conditional upon rigorous, and stringent, compliance with, and progress on, pre- specified critical parameters like, inter alia, computerization. Indeed, if only to take this forward, rural cooperative institutions have been enjoined upon to be fully CBS (Core Banking Solution)-compliant by 30th September 2013 !
3. In delivering credibly, and effectively, on a national agenda as challenging, formidable and onerous as the foregoing, you will readily agree with me that leveraging technology is a sine qua non and this, therefore, provides the most appropriate and fitting backdrop, and context, to today’s Summit which has been organized not a day too soon.
4. Having seen the imperative and inevitability of this seminally critical role of leveraging technology in banking, it would only be instructive and value -adding to consider the business model of a typical safe, and sound, bank. A bank is typically characterized by relatively high financial leverage, which, in turn, is measured by what is known as Equity Multiplier (EM), which, in turn, is nothing but total assets of a bank divided by its common equity/ shareholder funds. Multiplying this leverage (EM) by what is called Return on Assets (ROA) gives Return on Equity (ROE) for a bank. Typically, safe and sound, banks have had historically an average ROA of about 1% and a reasonably safe EM of about 15, implying an average equilibrium ROE of about 15%. In the recent period, the Indian Banking System has had leverage of about 13 to 14 times. In this context, another key financial parameter is what is known as Net Interest Margin (NIM) which is the difference between interest earned and interest expended as a percentage of a bank’s assets. For Indian Banks, NIM has varied between 2.5% to 3.5%. If we deduct ROA from NIM, we get what can be called Non Interest Cost of Intermediation. In fact, it is this critical parameter viz (NIM-ROA) which can be controlled by leveraging technology. All else being equal, technology leverage in a bank can typically significantly reduce this non interest cost by delivering humanly impossible exceptional speed, efficiency and volumes in banking transactions and, therefore, for a given NIM, increase ROA, or for a given ROA, ROE and EM, significantly reduce NIM and thus borrowing costs for bank customers. In the first case, higher ROA and hence ROE enhance shareholder value, making the bank less risky and thus reducing equity risk and deposit insurance premia and potentially keeping taxpayers out of harm’s way. Thus, either way, Technology Leverage (TM) delivers value to all stakeholders viz, shareholders, uninsured depositors, borrowers, taxpayers, in particular, and the real economy, in general. As this discerning audience will readily see, this is where leveraging banking technology can, and does, make a significant difference in terms of costs and time savings by providing speed, efficiency and huge volumes. It is also interesting to note that banks are special because of their intermediation role in the real economy and that is why they are allowed by public policy and regulators higher leverage. More specifically, higher leverage for banks is critical to efficient and effective monetary transmission because higher leverage means banks’ relatively higher reliance for their lending to the real economy on non- equity interest rate sensitive deposit liabilities which is typically the key target variable of monetary policy. To have an incontrovertible, and conclusive, sense of this proposition, this learned audience only needs to consider the extreme hypothetical case of banks having an Equity Multiplier (EM) of 1. This, as the discerning audience will readily see, will mean ROE = ROAx1 and if this be, say 15%, the borrowing costs to the real economy will be 15% + even if the applicable policy rate is 1% as banks’ lending will be entirely funded by interest insensitive equity ! In other words, monetary transmission will be completely clogged. But since higher leverage is a double edged sword, it increases, through leverage multiplier, both profits and losses and, therefore, needs to be handled with care. This, in turn, is ensured by effective regulation and supervision of banks for uninsured depositors and deposit insurance for small depositors. In particular, as this learned audience is aware, in delivering equilibrium market competitive return on equity, banks assume financial risks such as credit, interest rate, foreign exchange risks etc. While assuming financial risks directly contributes to financial returns, technology risks do not contribute incremental returns directly but only indirectly by, as I have observed above, cutting non interest costs/ expenses through cost and time savings and very high speed, efficiency and volumes, although risk of loss is contributed exactly in the same manner as financial risks (i. e. loan and marked to market loss provisions). By now, to my mind, we are ready to reckon with what I would call the Technology Multiplier (TM) or Technology Leverage. Almost exactly like financial leverage in a bank, Technology Leverage also signifies potential downside risks to ROA and, therefore, ROE. But in combination with the already inherent financial leverage, Technology Multiplier (TM) and Equity Multiplier (EM) make for what I would call ‘leverage on leverage’ or ‘super leverage’ like options on futures and derivatives on derivatives ! This is attested to by recent infamous technology glitches/snags at Royal Bank of Scotland (RBS) and Lloyds Banking Group. As this learned audience might be aware, RBS is paying about USD 200 million in compensation to its 17 million technology - disenabled customers due to a massive technology meltdown which locked them (customers) out of their accounts for three weeks ! This has also made the recently established Financial Conduct Authority (FCA) – successor to Financial Services Authority- take the unusual step of announcing an enforcement investigation which may likely result in huge fines in addition. Another example of a technology glitch is that of Lloyds Banking Group’s ‘Faster Payments’ designed to ‘speed up’ cash transfers going slow after it was hit by a glitch delaying wage and bill payments and as regards the relatively recent but mushrooming credit card frauds , less said, the better. If only to complete the Technology Leverage/ Multiplier backlash story, one cannot but refer to the recent case of Knight Capital which went belly up due to a USD 440 million loss in a matter of less than 45 minutes - literally USD 10 million per minute, and that too ‘involuntarily’ -because of a technology glitch in its High Frequency Trading (HFT) algorithm system. This simply meant that it was not humans but ‘Technology’ that was in complete control and command for it is humanly impossible to lose $440 million in 45 minutes through what was a preposterous ‘buy high- sell low’ algo- trading ! The sheer speed of Algo-trading left just no response time for just- in time human intervention. This is simply because Technology Leverage/Multiplier being symmetrical also ‘saves’ time in reverse during a backlash, delivering losses in multiples as it delivers benefits/ cost savings in multiples of speed and volumes !! In other words, while technology is not infallible as humans are not, because Technology Multiplier/ Leverage is multiple of that of humans, losses due to its fallibility are multiples of humans’ failure. However, here I must hasten to caution that even if humans, unlike Technology Multiplier/ Leverage, do not have leverage, unethical and rogue traders/ executives in banks can, and do, piggyback ride Technology Leverage as indeed illustrated umpteen times in the past by the egregiously unedifying cases of the Nick Leesons and Jerome Kerviels ! Be that as it may, high frequency trading, based on complex algorithms, is trading by computers and not by humans. The long and short of this very elaborate overview of the downside risks of technology is to alert, and sensitize, this discerning audience to the very real and extreme risks which leveraging technology can expose banks to and, therefore, the ‘Technology Leverage’ can make a huge difference to Return on Assets (ROA) and, therefore, Return on Equity (ROE), thus having adverse consequences not only for the shareholders of banks but also other stakeholders such as uninsured depositors, deposit insurers, borrowers and unsecured creditors by significantly raising equity , credit and deposit insurance premia and in the extreme case, threatening systemic financial stability with potential implications of taxpayer - funded bailouts.
5. To conclude, my purpose was to alert, and sensitize, this learned and discerning audience to the upside potential and downside risks of the so -called Technology Multiplier (TM), a close cousin of the well known Equity Multiplier (EM) and no more, no less. If only to recapitulate, since Leverage is just as profit/ upside agnostic as indeed it is loss/ downside agnostic when it comes to multiplying them both, it is imperative to vertically integrate fail- safe technology systems with robust, credible and reliable BCP and DR backstops. To paraphrase Einstein, “Technology is a good servant, but a bad master.” Therefore, the key in leveraging technology in banking is humans being in control, command and on top of technology and not the other way around. My message today is that we need to resist the temptation of cutting corners when it comes to investing in technology in- house as opposed to mindless, indiscriminate and injudicious outsourcing driven and motivated only by considerations of cutting costs to the bone at any cost ! In conclusion, having hopefully done a good job of the easier part of ‘why’ it must be done , I leave the not -so- easy- part of ‘what’, and ‘ how’ it, must be done to the very redoubtable Technology Experts, Practice Leaders, Operations Heads and Senior Technology Process and Solutions Experts assembled here ! With these words, I close my keynote and wish the Summit all success it so very much deserves ! Thank you all so very much indeed.
-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x
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