How will financial services organizations handle complex analytical decisions in the future?
Our financial institutions made decisions about their operations and customers is at the heart of the financial crisis we’re in. Managers of these institutions entrusted decisions to analytical models they didn’t understand. Regulators allowed banks, rating agencies, and nonbank financial firms to make millions of bad decisions. Financial innovation led to financial irresponsibility.
Over the next several months and years, regulators and management teams will be putting in place systems, processes, and policies to try to prevent rampant bad decisions. What should be the attributes of these controls? I have a few ideas. Among them is that every manager should be a quant, there should be no more missing data (such as a mortgage borrower’s income), and that assumptions behind the quantitative models should be out front and in the open.
Read more here and tell me what you think.