Effects Of Data Loss On Financial Institutions

2007-10-06 Word Count: 701 Category: Data Recovery

Thus, the loss of data stored on the servers or computers of such institutions can prove to be disastrous not only for the institutions themselves, but also for their clients. To understand this better, let us have a look at the type of data that financial institutions deal with.

What Do Databases of Financial Institutions Consist of?

The data that the financial institutions store can be classified into three major categories as follows:

The static data that does not require frequent changes. This type of data may be used for references and may include information such as past transactions of a particular client, his personal details and account number etc.
The data pertaining to current transactions that are being carried out by the bank or by its customers. This data needs to be updated frequently.
The derived data that has been calculated on the basis of various factors such as assessing the risk of a particular transaction, the underwriting details etc.

What Is This Data Used For?

The above-mentioned data can be used for a variety of purposes depending on the type of financial institution. For example, in banks, the records of clients are used to facilitate online transactions for clients. The ATM machines also are connected to the bank’s server through the Internet. The transactions that you may make through your debit or credit cards are recorded in the bank’s database.
Similarly, in case of insurance companies, the data regarding the clients is usually stored on their computers. As you may be aware, almost all transactions of a brokerage house are carried out online. Thus, the brokerage may make use of its many strategies and client data to carry out its different transactions.
Also, a number of these financial institutions provide forms online for the registration of potential clients. The data that is entered on such forms is stored on computers or on servers.

Effect of Data Loss on Financial Institutions

Data loss can have a disastrous effect on financial institutions and in majority of the cases it may result in the closing down of the institution. A number of examples of this can be seen. Here is a summary of the possible effects of such data loss:

Most of the governments make it mandatory for banks and other financial institutions to store records of their major transactions in the past. Thus, if the institution loses such data, it may lead to complicated legal procedures.
Apart from this, the whole working of the concerned institution may come to a standstill, if the data of their clients is lost. In case of banks, further online transactions by their customers will not be possible until the data has been retrieved or has been restored from its backup. Also, the transactions that are carried out without the use of the internet will not be possible as a number of references to the data that has been stored, have to be made to carry out these transactions.
If the data of the credit card companies is lost, the transactions through credit and debit cards will not be possible.
Apart from this, data loss might lead to a feeling of panic among customers. Thus, there is the possibility of the companies turning to other financial institutions in case of data loss.
Thus, rather than showing profits for a particular year, the financial institutions may incur a huge loss.

Data Recovery for Financial Institutions

The data recovery process for the financial institutions is usually a lengthy and tedious process taking into consideration the amount of data that has to be recovered. Hence, the cost of the data recovery process is high. Apart from this, the data recovery companies may charge more for the recovery of data considering the importance of the data.
Considering the above factors, most of the financial institutions that operate on a large-scale make more than one backup copy of their data. While doing so, care should be taken that the data pertaining to recent transactions is available on media from which it can be restored easily. Financial institutions need to take that extra precaution as the data is crucial to the lives and businesses of many cutsomers.