It was 2005. I was on the team at the SEC responsible for overseeing the investment banks. The chief credit officer at a midtown-based firm was explaining how their risk aggregation system worked. At some point, he pulled a ragged one-pager from his notebook and unfolded it. It was a maze of boxes and lines that looked like an intricate circuit diagram.
“These are the IT systems that feed into our credit risk aggregation engine,” he said. He began tapping on different lines and boxes. “We have to do manual reconciliations at all of these points because, well, not all handoffs are clean. The credit risk report that we review with you every month comes from… this.” He drew a circle in the air around the whole diagram.
Later that afternoon I met with the chief credit risk officer of a downtown-based competitor, who explained their system. There was no spaghetti dia…
