Like a robot from 1984

You might remember Arctic Monkeys’ first hit from 2006 “I Bet You Look Good On The Dancefloor”, which has this couplet in its chorus:

I said, I bet that you look good on the dance floor
Dancing to electro-pop like a robot from 1984

Looking back 22 years to the robotic dancing craze might seem a stretch for Alex Turner, the songwriter, who was not even born when robotic dancing was all the rage. Some of us might prefer to wipe the whole memory of robotic dancing; my children certainly think I’m a robot on the dancefloor, but not in a good way!

Reaching back into history is not just the inspiration for rock stars, it is becoming the drum beat for Risk and Resource Management leaders in Capital Markets.

When we look at our client’s data, we can see that the Master Agreements that carry the largest exposures were mostly signed before the Global Financial Crisis (GFC) of 2008. For a tier 1 liquidity provider, we found the range of contract dates with their top 10 peer banks to be from 14th May 1986 (when Spitting Image’s “Chicken Song” was at number 1 in the UK charts – perhaps the worst number 1 ever) to 7th February 1995 (the year Celine Dion’s “Think Twice” topped the charts). Is a pre-internet contracting standard suitable for a market that has a current Gross Market Value of more than $20 trillion? Probably not.

To keep track of market and regulatory changes most of these critical agreements have been amended so many times that piecing together the current terms that manage these relationships is beyond many banks. To complete the scene, we can add out-dated systems hurriedly put in place post the GFC, which are no longer fit for purpose.

So as Basel III end game impacts capital reserves, Resource Managers face the challenge of optimising assets to minimise RWA. In this unending dance to manage scarce resources, banks are hampered by outdated contracts and old systems both designed for a different age.

Just as I have transformed robotic dancing into ‘dad dancing’, it seems regulators, like my children, are inclined to penalise banks for the prehistoric processes they have in place around agreement data. So, rather than sitting out the next dance, embrace the beat with Likezero – where you will not only look good but also stay in sync with the evolving regulatory landscape.