Authors
Grenville J. Croll
Abstract
We briefly review the well-known risks, weaknesses and limitations of spreadsheets and then introduce some more.
We review and slightly extend our previous work on the importance and criticality of spreadsheets in the City of London, introducing the notions of ubiquity, centrality, legality and contagion. We identify the sector of the financial market that we believed in 2005 to be highly dependant on the use of spreadsheets and relate this to its recent catastrophic financial performance.
We outline the role of spreadsheets in the collapse of the Jamaican banking system in the late 1990's and then review the UK financial regulator's knowledge of the risks of spreadsheets in the contemporary financial system.
We summarise the available evidence and suggest that there is a link between the use of spreadsheets and the recent collapse of the global financial system. We provide governments and regulating authorities with some simple recommendations to reduce the risks of continued overdependence on unreliable spreadsheets. We conclude with three fundamental lessons from a century of human error research.
Sample
We have shown that:
- There is a large research base extending back over twenty years demonstrating that spreadsheets pose significant risks to organisations.
- Spreadsheets are integral to the function and operation of the global financial system and most users of the financial system do not realise this.
- Catastrophic collapse of one form or another due to the use of untested spreadsheets in the financial markets was predicted several years ago.
- A recent previous regional banking collapse was partly caused by the use and abuse of spreadsheets.
- The UK financial regulator was fully cognisant of the risks of using spreadsheets within the banking and other regulated financial sectors, the related possibility of contagion and relevant technical problems in the use of spreadsheet based monte carlo techniques to compute VAR based capital requirements.
- Credit derivatives were identified as being particularly reliant on spreadsheets.
- A systemic collapse of the global financial system occurred during the period 2007-2009 where credit derivatives played a significant part in the destruction of capital.
Publication
2009, EuSpRIG
