A financial analytic based service architecture: decision support under the Basel III framework

Abstract

The 2008 financial tsunami stimulated intense discussions on the effectiveness and efficiency of the current practices in financial risk management in banks. Under stricter financial regulations after the crisis, bank senior managers are facing the challenge to balance between liquidity and profitability. Financial information services supporting financial risk management decisions are in great need to meet the new regulatory requirements in Basel III. However, risk management services available in the market (e.g., consulting, analytics and reporting services) are lack of capability to handle financial market dynamics. Currently, academic research efforts mainly use empirical and static approaches to measurement and management of risk in banks but research on complex financial systems is scant. To address these problems, we propose a financial analytic based service architecture consists of four service levels to support decision making in liquidity and revenue management under the Basel III framework. Real data on liquidity shortfall during the financial tsunami is used to evaluate the proposed architecture. The service architecture also achieves agility by providing modular functions so that the decision model can be easily extended and modified by service users.