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G20

G20’s Quest for Strong,Sustainable and Balanced Growth

Participants were anxious that recov-ery the running in deferent speedsacross regions, and unemployment isstill high in many economies. Partic-ipants indicated that since someeconomies are still dependent onpolicy support and public finances,the policy support should be main-tained until the recovery is firmlydriven by the private sector when itbecomes ready and more en-trenched.

In cooperation with the IMF andWorld Bank, the participants set aninitial package of policies options tobe considered by participating lead-ers at the June 2010 G 20 Summit inToronto - Canada.

A reaffirmation to stronger capitalstandards was indicated, comple-mented by clear incentives to miti-gate excessive risk-taking practices.

Participants reaffirmed their supportfor the FSB to develop prudentialstandards, market infrastructures tocontain the propagation of shocksand resolution tools and frameworksfor systemically important financialinstitutions.

Participants stressed the importanceof achieving a single set of high qual-ity, global accounting standards andimplementing international standards

ISSUE 17 MAY 2010 the BANKING EXECUTIVE

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April G20 meeting of Finance Ministers and Central Bank Governors was held inWashington D.C. on a quest to enhance the momentum of global economic recoveryand to maintain an adequate transition to a strong, sustainable and balanced growth.The G 20’s agenda included another important file, financial regulatory reform to

keep international financial institutions on the right track.

The International Monetary and Financial Committee gathers for their semi-annual meeting atthe IMF's Headquarters April 24, 2010 in Washington, DC. Finance Ministers and

Bank Governors around the world will be attending the IMF/World Bank Spring Meetings thisweekend in Washington, DC.

G20

with regard to compensation prac-tices.

THE G-20 FRAMEWORK FORSTRONG, SUSTAINABLE ANDBALANCED GROWTH:The primary goal of the Frameworkis to encourage G20 countries to im-plement coherent policies that attain

mutual beneficial growth paths andavoid future crises, each frameworktailored according to every country’sspecial features.

STRONG GROWTH SHOULD:a. Close current output and employ-

ment gaps in G20 countries assoon as possible,

b. Converge to the growth rate ofpotential output over the mediumterm, and

c. Be enhanced over the long termby increasing potential outputgrowth, primarily by efficientlyutilizing available resourcesthrough the implementation ofmore effective structural policies.

ISSUE 17 MAY 2010the BANKING EXECUTIVE

33

US Secretary of Treasury Tim Geithner (L) talks withIInternational Monetary Fund's Managing DirectorDominique Strauss-Kahn (R) as they walk to their

semi-annual meeting at the IMF's Headquarters April24, 2010 in Washington, DC. Finance Ministers andBank Governors around the world will be attendingthe IMF/World Bank Spring Meetings this weekend in

Washington, DC.

United States Secretary of the Treasury Timothy Geithner walks to his position during a group photoof the International Monetary and Financial Commit-

tee members prior to their meeting at the 2010IMF/World Bank Spring Meetings at International

Monetary Fund Headquarters (IMF) April 24, 2010 inWashington, D.C.

Members of the International Monetary and FinancialCommittee pose for a group photograph prior to

holding their semi-annual meeting at the IMF's Head-quarters April 24, 2010 in Washington, DC. FinanceMinisters and Bank Governors around the world willbe attending the IMF/World Bank Spring Meetings

this weekend in Washington, DC.

Members of the G-20 Finance Ministers and CentralBank Governors pose for a group photograph after

holding their meeting at the IMF's Headquarters April23, 2010 in Washington, DC. Finance Ministers andBank Governors around the world will be attendingthe IMF/World Bank Spring Meetings this weekend in

Washington, DC.

G20

SUSTAINABLE GROWTHSHOULD BE:a. In line with underlying potential

growth over the medium term,thereby providing a firm basis forlong term growth,

b. Based on sustainable public fi-nances and price and financialstability,

c. Resilient to economic and finan-cial shocks,

d. Determined primarily by compet-itive market forces, and

e. Consistent with social and envi-ronmental policy goals.

BALANCED GROWTH SHOULD:a. Be broadly based across all G20

countries and regions of theworld,

b. Not generate persistent and desta-bilizing internal or external im-balances, and

c. Consistent with broad develop-ment goals, in particular, conver-gence to high standards of livingacross countries in the long run.


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US Federal Reserve Chairman Ben Bernanke (L) talksshakes hands with Mexico's Bank Governor AgustinCarstens (C) as US Secretary of Treasury Tim Geithner(R) sits at the G-20 Meeting of the Finance Ministersand Central Bank Governors at the IMF's Headquar-ters April 23, 2010 in Washington, DC. Finance Min-isters and Bank Governors around the world will beattending the IMF/World Bank Spring Meetings this

weekend in Washington, DC

International Monetary Fund's Managing DirectorDominique Strauss-Kahn (R) talks with World BankPresident Robert Zoellick prior to the start of theGroup of 24 Minister's meeting at the IMF's Head-quarters April 22, 2010 in Washington, DC. FinanceMinisters and Bank Governors around the world willbe attending the IMF/World Bank Spring Meetings


International Monetary Fund's Managing DirectorDominique Strauss-Kahn (2nd L) talks with US Treas-ury Secretary Tim Geithner (C) and France FinanceMinister Christine Lagarde (2nd R) after members ofthe G-20 Finance Ministers and Central Bank Gover-nors pose for a group photograph at the IMF's Head-quarters April 23, 2010 in Washington, DC. FinanceMinisters and Bank Governors around the world willbe attending the IMF/World Bank Spring Meetings


Goldman Scha’s

Goldman Sachs’ Fraud

SANCTIONGoldman Sachs, one of Wall Street’smost powerful firms and one of thefew firms who made it out of the2008 financial crisis approximatelywithout a scratch, was charged of se-curities fraud in a civil lawsuit by theSecurities and Exchange Commis-sion. The suit states that GoldmanSachs produced and sold a mortgageinvestment that was secretly in-tended to fail. In other words, theWall Street powerhouse companysold mortgage investments withoutinforming the purchasers that the se-curities were designed with inputfrom an important client who wasbetting on them to fail. But as theEconomist stated in one of its articles,Goldman Sachs remain “Greedyuntil Proven Guilty”

WHAT WENT WRONG?The story started back in 2007 whenGoldman Sachs at the request ofJohn A. Paulson (a prominent hedge

fund manager) created an investmentvehicle called Abacus 2007-AC1,which was one of 25 such vehiclesin which its clients could bet againstthe housing market (profit if value de-creases). At that time Paulson madean estimate of 3.7 billion dollars -NYTimes-. Nothing suspicious till now.But the other flip of the coin is thatGoldman Sachs then sold Abacus toinvestors (banks pension funds andinsurance companies) who profited ifthe bonds increase in value. Thoseinvestors lost more than 1 milliondollars in the deal.

SEC ACCUSATIONSAccording to the SEC, Goldman didnot tell investors "vital information"about ABACUS, including that Paul-son & Co was involved in choosingwhich securities would be part of theportfolio -Reuters-."Goldman wrongly permitted a clientthat was betting against the mortgagemarket to heavily influence whichmortgage securities to include in aninvestment portfolio, while tellingother investors that the securitieswere selected by an independent,objective third party," SEC Enforce-ment Director Robert Khuzami said.

GOLDMAN STATEMENTOn the other hand, the firm repliedby explaining that it never mischar-acterized Paulson’s strategy. More-over, the firm is not obliged todisclose the identity of a buyer toseller and vice versa. Goldman Sachsalso added that the commission’s ac-cusations are completely unfoundedin law and fact and the losses thelater firms incurred came from theoverall collapse of the mortgage mar-ket, not from the way the deal wasstructured.

WHO WAS CHARGEDThe suit accused Goldman Sachs as

a firm, and its executive FabriceTourre for being responsible of creat-ing the previously mentioned ques-tionable package. John A. Paulsonwas not accused. “Paulson was notcharged because it was Goldmanthat made misrepresentations to in-vestors, not Paulson” said RobertKhuzamy –Reuters-.

EFFECTS ON GOLDMAN ANDTHE STOCK MARKETThis turmoil had its effects on thestock market in general and Gold-man Sachs shares. The firm’s sharesslid 12.8% on the day the suit was is-sued, wiping out more than 12 bil-lion dollars of the company’s marketshare. The news dragged downbroad U.S. equity indexes, which fellmore than 1 percent. "The greatestpenalty for Goldman is not the finan-cial damages -- Goldman is enor-mously wealthy -- but thereputational damage…" said JohnCoffee, a securities law professor atColumbia Law School in New YorkThe perceived risk of owning Gold-man debt, as measured by credit de-fault swaps, increased. Treasuryprices rose as investors sought safe-haven government debt –Reuters-.

CONCLUSIONAt the end of the day, these chargesare a result of the new vision law-makers are seeking which aim tocontrol some of Wall Street’s prac-tices which led to the 2008 financialcrisis. Moreover, they are also con-sidering tougher rules for complexinvestments like those involved inthe alleged Goldman fraud.


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G24

Intergovernmental Group ofTwenty-Four on International

Monetary Affairs and DevelopmentCommuniqué

The Ministers welcomed the im-provement in global economicprospects since they last met, led bythe developing world. While thepace of recovery is uneven, it is en-couraging that all developing regionshave experienced a significant im-provement in growth performancesince the trough of last year, reflect-ing strong fundamentals. Ministersnoted, however, that many chal-lenges remain. Credit constraintscontinue to pose a risk to self sus-tained recovery. Household andcommercial sector indebtedness inadvanced countries continues topose risks, and sovereign balancesheets in several advanced countriesare a new and significant threat tostability. More generally, the crisishas left the fiscal positions of manyadvanced countries under strain, cir-cumscribing their ability to dealforcefully with the legacy of joblosses and high unemployment, andto face potential new shocks. Severalemerging markets are faced with asurge of capital inflows with potentialrisks of rising inflationary pressuresand asset price bubbles.

Furthermore, the Ministers noted thatsustaining economic recoveryagainst this backdrop will require

concerted and cooperative actions.Ministers reaffirmed their continuedcommitment to sound policies toachieve high and sustainable growthand to reduce poverty. They calledon the advanced countries to main-tain policies to support the economicrecovery while building confidencein the sustainability of their public fi-nances by announcing credible con-solidation plans, to be implementedas soon as the recovery takes hold.Ministers considered that any delayin reforming financial regulation toaddress the weaknesses that have ledto the crisis could jeopardize the re-covery, and urged vigorous imple-mentation of the reform agenda.

Moreover, the Ministers noted thatthe effects of the crisis are likely to belong-lasting. Many developing coun-tries continue to face constraints inexternal financing, which may be ex-acerbated by the increase in publicborrowing needs in advanced coun-tries. Ministers registered concernabout the shortfalls in delivery ofconcessional assistance and askeddonors to fulfill their prior commit-ments. They underscored the impor-tant contribution made by IDA andcalled for an ambitious IDA-16 re-plenishment with the support of all

donors, including a growing numberof developing countries.

The Ministers urged developed coun-tries to avoid protectionist measuresand other restrictions in trade, fi-nance, investment, and labor serv-ices so as to not jeopardize globalgrowth and stability. They reiteratedthe importance of an early conclu-sion of the Doha DevelopmentRound that addresses the needs ofdeveloping countries, in particularimproved market access and elimi-nation of agricultural subsidies byadvanced countries.

In addition to other resolutions theMinisters noted that the crisis hasgiven new impetus to the reform ofthe international financial institu-tions. Both the IMF and the WorldBank have taken commendable stepsto enhance their responsiveness, butthe crisis has also highlighted theneed for more fundamental reforms.Agreement and implementation ofsuch reforms must be a centerpieceof the agenda this year.


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Ministers of the Intergovernmental Group of Twenty-Four on International Monetary Affairsand Development held their eighty-third meeting in Washington, D.C. on April 22, 2010. Mr.Guido Mantega, Minister of Finance of Brazil was in the Chair, with Mr. Pravin Gordhan,

Minister of Finance of South Africa as First Vice-Chairman, and Mr. Arvind Virmani, IMF Ex-ecutive Director for India as Second Vice-Chairman.

Data Mining

DATA MINING

A New Culture in Adapting BankingDecisions through Data-Centric

MethodologiesAMJAD ZAIM, PHD – CEO, COGNITRO ANALYTICS


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In today’s knowledge-based globalized economy, information is the bloodline in mosteconomic sectors and business institutions operating in a rapidly changing market-

place. Data, being the building block of any body of knowledge, has become abundant- thanks to the recent innovation in IT and computer technology which has led tothe accumulation of massive new data. Within these piles of electronic repositories ofmarketing, operational, and transactional data lay important trends and patterns in-

valuable to managers and executives, as well as regulators and policy makers.Nevertheless, the enormous size of those gigantic data makes the job of analyzing and

deriving meaningful information a formidable task, and results inbusiness environments that are “data-rich-yet-information-poor”.

Data mining is changing the landscape of decision making, empowering financial andnon-financial companies to harness the full power of its most valuable assets – data,

and creating a new business culture of information-driven decisions.

Data Mining

Data Mining, in its proverbial sense,involves sifting through data insearch of precious information(nuggets). From a business point ofview, it is the process that allows anorganization to “read between thelines” and discover the needs, aspi-rations, risks and opportunitieswithin the target market. Technicallyspeaking, it’s the art and science of

extracting hidden patterns from largedatabases, describing an interestingphenomena and predicting futuretrends, hence the terms descriptiveanalytics and predictive analytics.Having its roots in computer science,statistic and psychology, the value ofprospective insights offered by datamining far exceeds those of OLAP(Online Analytical Processing)queries and statistical hypothesis test-ing, and moves beyond traditionalretrospective analysis found in com-mon standard reports.

Through carefully-designed and ap-plication-specific models that cap-ture and represent embeddedknowledge in the data, a user candiscover an array of intricate rela-tionships and root causes, forecastunexpected outcomes, and answerquestions such as why things hap-pened and what is likely to happen.It even provides "what-if" scenariosthat can’t be queried directly fromthe database. Examples include:"What is the expected lifetime valueof a customer," "Which customers arelikely to request a certificate of de-

posit," or "Will this customer cancelour service if we introduce fees?"Data Mining uncovers facts that aretraditionally either too obscure todiscover with conventional tools orare time-consuming to resolve.

Aside from the tactical use of data fortop line sales forecasts and bottomline financials, competitive organiza-

tions are using their data strategicallyto improve profitability, reduce costs,and enhance customer satisfactionand retention. The technology hasdelivered on its promise, rewardingcompanies such as Johnson & John-son, GE Capital as well as Procter &Gamble by enabling them to profitfrom their data by adopting knowl-edge-driven decision making philos-ophy and gaining competitiveintelligence. One study reports thatthe payoff from an effective data-mining project can be as high as $24million in some cases, with an ROIthat can reach triple fold in somesectors of the economy including thebanking and the financial sector. Asglobal competition amongst bankssoars, the battle to proactively cap-ture and maintain market shares be-comes more intense, and banks withreactive customer acquisition andconventional mass marketing strate-gies are more likely to fall behind.Moreover, the recent economicdownfall is exerting tremendouspressure on banks and financial insti-tutions to adopt new intelligentstrategies to money lending and in-

vestment portfolio management.

Banking Analytics, or applications ofData Mining in banking, can helpimprove how banks segment, target,acquire, and retain customers. Addi-tionally, improvements to risk man-agement, customer understanding,risk and fraud enable banks to main-tain and grow a more profitable cus-tomer base. The importance of thesemeasures has been implied in BaselII accord that explicitly emphasizesthe need to embrace intelligent creditmanagement methodologies in orderto manage market uncertainty andminimize exposure risk. A number offinancial institutions have been quickto recognize and adopt this emergingtechnology – and it is changing thebanking landscape and giving banksand financial institutions previouslyuntapped savings, margins and profit.According to an Oracle survey, 92 %of US banks are achieving high re-turn on investment (ROI) by imple-menting intelligent data miningsolution. Also, a recent Gartner studyconcluded that banks that don’t es-tablish intelligent risk managementcapabilities are likely to lose cus-tomers, increase capital cost and de-crease credit ratings, compared tocompetitors.

Being a data-intensive industry withtypically massive graveyards of un-used and unappreciated ATM andcredit processing data, banks and fi-nancial institutions are some of thesectors that stand to reap great bene-fits from adopting data mining in itsorganizational strategy. As bankscompete for customers, they willhave to improve customer satisfac-tion and loyalty by finding answersto questions such as: which financialinstruments are more likely to be re-quested together by which groups ofcustomers, and what is the profile ofa frequent ATM customer. Also,learning what transactions a cus-tomer typically do before closinghis/her account will help customerrelationship department improvecustomer retention and reduce attri-


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Data Mining

tion. In credit and risk departments,more proactive credit and risk man-agement measures can be taken toprevent defaults, identify bad loans,and improve the process of loan ap-plication assessment, screening andscoring. Default risk can be mini-mized by identifying the profile ofhigh-risk borrowers and by examin-ing the characteristics of previous de-faulters. Smarter investmentdecisions can also be made by fore-casting stock and bond performancebased on advanced portfolio opti-mization techniques derived throughdata mining. Data mining can alsoguard against bank fraud and moneylaundry activities by detecting poten-tially suspicious credit card and wire-transfer transactions. Byunderstanding early signs of fraud,banks will be well-equipped to un-dertake fraud prevention initiativeswhich will help reduce fraud risk andminimize losses. The Royal Bank ofCanada is a good example: the adop-tion of Banking Analytics saved over$15m when a new fraud rules enginethat incorporated predictive analyticswas implemented. As banks become

more sophisticated in their businessoperations and marketing service of-ferings, the role of data mining be-comes much more essential.

Despite that the field is poised togrow exponentially over the nextdecade, its adoption across banksand other industries has been hin-dered for several reasons. For one,the convoluted math behind thescenes is mystifying, and the heavyanalytical skills required make it re-sourcefully prohibitive. More funda-mentally, it is the culture of decisionmaking in banking that has to evolve;that is, it has to depart from decisionsthat relies on personal assumptions,subjective experience and occa-sional hunch into a fact-basedprocess driven by data analysis andinformation discovery. At somepoint, banks will learn that not ex-ploring the full potential of data min-ing simply mean greater uncertaintyovershadowing profitable businessdecisions. I believe that we are stillin the early days of the inevitablewidespread use of the data miningtechnology. Today, innovative lead-

ers and progressive-thinking man-agers are successfully utilizing datamining to guide their decisionsknowledgeably and steer their organ-ization effectively. They are realizinga significant return not only on theirinvestment in data mining but in allother complementary services in-cluding the data infrastructure. At theend, strong banks that place data atthe center will use knowledge andnot finance as a main asset to lever-age their competitive and even sur-vival strategy. Traditional banks, onthe other hand, that choose to under-mining data mining will eventuallygive away their future to competitorswhich today are busy mining for in-formational gold.

“Cognitro Analytics, is a US-basedcompany that provides advanced an-alytics services and business intelli-gent solutions. Cognitro Analyticshelps banks and financial institutionsto better manage risk, optimize mar-keting, uncover fraud and retain cus-tomers by maximizing the value ofdata to make more insightful and in-formed business decisions”.


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