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W. David Stephenson

W. David Stephenson

Posted: September 23, 2008 03:13 PM

Automated Data Feeds Make Smart Regulation Possible Now


There's been a lot of talk in recent days that what we need isn't more regulation of banking and business in general, but "smart" regulation. It seems to me that we also need more regulation, but we certainly need to make sure whatever is imposed is also as technologically sophisticated as the financial transactions it's meant to monitor!

One Internet innovation, automated data feeds, might simultaneously meet the smart regulation requirement, improve banks' internal operating efficiency, and even win back public trust as well. Obama has specifically called for data feeds from government agencies as part of his transparency strategy to rebuild public confidence in government, especially as a result of the bailout crisis.

This isn't just theoretical: it's the approach that the District of Columbia has taken to win back public support through transparency, while also improving its delivery of services.

Technological limits used to mean that any kind of data had to be laboriously culled and aggregated before being submitted to regulators. Now, innovations such as XML tags and data syndication in formats such as RSS (as a Huffington subscriber, you get the Post via an RSS feed) or KML (used for Google map mashups) make it simple for companies to automatically combine the data and release it, whether internally or to regulators -- and even to the public.

The District of Columbia, long plagued by corruption, began a transparency initiative under former Mayor Anthony Williams. It shifted into high gear under Mayor Adrian Fenty, and CTO Vivek Kundra. They now publish, on a real-time basis, more than 260 different data streams of statistics as varied as violent crime, building starts, and even requests to fill potholes. All of those statistics are available for anyone to analyze and interpret, and current uses range from tracking development around the new Nationals Park to showing crime reports on a Google Map.

Equally important, District agencies use the same data feeds internally to deploy their workforces more effectively, and break down barriers to cooperation between agencies.

If the same system was applied to banking, critical statistics could flow automatically to federal regulators, while also being available to the banks' own staff -- many of whom have never had real-time data access in the past. Combined with innovative web-based tools to turn obscure data into easy-to-understand visualizations, for the first time the workforce, as well as regulators, would have the kind of real-time information that's essential in today's global economy, whether to regulate businesses or to run them.

Furthermore, if the data were automatically "scrubbed" of identifiers and any kind of information that might be a legitimately competitive concern, it might also be possible to aggregate and publish the data externally, so that the general public, media, and scholars could also subscribe to, analyze, and scrutinize the information on a real-time basis. The Patent Office is experimenting with an analogous innovation, the Peer-to-Patent program, which allows anyone with relevant expertise to review a pending patent and submit commentary to the Patent Office.

This suggestion is in line with research by a team from Princeton that recently argued that the government should focus on "creating a simple, reliable and publicly accessible infrastructure" to make data the government collects accessible to both entrepreneurs and public interest groups. While I disagree with the authors' conclusion that private actors are better prepared to deliver that information to citizens than government agencies are, the government shouldn't have a stranglehold on data, especially in the case of banking, since regulators failed so miserably to head off this crisis.

The past few months' volatility in banking has shown how rapid the pace of change has become, and how quarterly reports are no longer enough: automated data feeds are an important tool, available today, to improve investment banks' performance and make it easier for regulators to avoid a repetition of the current disaster.

That's smart regulation, and it should be a requirement under the pending bailout legislation.