04 July 2011

XBRL and Banking - the coming boom

I am very positive and hopeful (no - expectant) about banks using XBRL for credit analysis, and the Dutch are leading the way.

The coming deluge of filing in the US, with an additional 8000+ companies financial statements being available in XBRL, will have two very real impact in relation to banking and XBRL.

1. No smaller accounting or financial reporting software will be able to 'ignore' XBRL, and I fully expect XBRL to be a standard output format for all within the next two years.
2. There will be a steady flow of new applications to analyse the information, with some of those applications being natural applications for bank.

Where will this lead? Directly to Banks using XBRL for corporate client credit analysis and monitoring of non-public clients. It is only a matter of time, and not very much time, before banks will be requesting XBRL versions of financial statements from non-public clients - statements that today are provided in Word, Excel, PDF or even fax/printed.

The changes that this will drive include, but certainly are not limited to:

1. Better XBRL production software, either as out-sourced services, SAAS, or built-into already in use accounting and financial reporting systems.
2. A massive increase in the pool of XBRL data - although the vast majority of that data will not be publicly available.
3. Assurance over XBRL will take on even greater importance, and tools and processes to make that highly efficient will be needed - soon.
4. New taxonomies for financial reporting - in most cases "closed" taxonomies sponsored either by individual banks or by banking associations and industry groups. Why "closed"? Because extensibility is great is you are the SEC and you want anyone to report anything. If you are a bank, a million extension elements is simply unrealistic and of zero additional value to your analysis.
5. Better quality credit analysis, leading to more efficiently scaled cost of capital for non-public companies (lower for the better credit risk companies, higher for the higher risk companies).

So I am actually extremely bullish about XBRL for banking. It is not here now, but the market conditions are finally coming into place to make it almost inevitable in the next few years.

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