Last week, I had a phone call with Broadcom. On the call, a bank representative discussed how using a mainframe computer relates to their commitment to customer security, reliability, and availability. During an earlier IBM conference call, several banks said that the mainframe also helped them to make better decisions.
I was intrigued by these conversations and wondered if the recent bank failures at Silicon Valley Bank and First Republic Bank might have been related to whether or not they used mainframes. This is a small sample, but neither failed bank ( According to this report ) used mainframes. JPMorgan Chase & Co., the bank that bought First Republic does.
Banks that use mainframes will likely prioritize low-risk, whereas banks that don’t may be more willing than others to take unreasonably high risks. People are concerned about the safety of their money, so one question you can ask is, “Do you use mainframes for your mission-critical applications?”
Let’s examine the relationship between mainframes, banking, and risks. We’ll finish with my Product of the week, a small device that can extend your smartphone’s battery life. The device was a bit intimidating, but it performed as it was advertised.
Mainframe Administration Challenges
IBM was the first big company for which I worked. It was at the dawn of the PC, and mainframes were a joke compared to the PCs. Don’t get me wrong. Mainframes are more reliable and secure than IT, but MIS is needed to make everything work. The organization was known to have a penchant for getting requests wrong and executing them on a schedule that measured in years.
We joked that to get anything out of MIS, we had to sacrifice a chicken and dance naked around a fireplace, but HR didn’t like that, so we never tested the theory. You could meet your deadlines and get more done with a PC and, later, a server.
With this improvement in flexibility, we also went from measuring uptime in years to measuring it in hours. Mainframes became more flexible but did not compromise on security, reliability, and availability. Meanwhile, PCs remained simpler to use while significantly improving reliability, security, and availability.
Due to a shortage of talent, mainframes are more expensive and harder to administer. However, IBM, Broadcom, and BMC have taken aggressive steps to increase the training. Although there are fewer people with mainframe experience, it’s still more difficult to find a qualified staff member than someone with x86 server expertise.
Mainframes and banks
In three industries, mainframes are critical to the success of each: government, health care, and banking. Banking has been most aggressive in preserving technology. Why? Mainframes are better for banks because they need to balance cost and risk.
The selection and continued use of mainframes by a financial institution may therefore directly indicate the quality of the bank’s internal risk management. Banks that use mainframes prioritize risk mitigation over cost.
The recent Silicon Valley Bank and First Republic Bank’s failure can be attributed to a lack of risk management. This suggests at least a correlation between risk mitigation and technology selection. Mainframe usage is not the only or absolute indicator of good risk management. However, it may be the easiest to measure.
It is difficult to identify unreasonably high-risk behavior
It is difficult to identify unreasonable risk behavior, even within a company. You should look for rapidly increasing meal and entertainment costs, dates between managers and subordinates, or unusual purchases.
The mainframe, however, may be a better indicator. It is a capital expense that can be significant to a financial institution. And the reasons for buying and maintaining a mainframe are tightly linked to the desire to reduce risk.
While writing this, I looked to see if the financial institution I use (which I won’t mention due to personal security concerns) used a mainframe. It is, and I’m less concerned about it going under — which I was not worried about before the recent failures.
Wrapping up
Mainframes are used to prioritize reliability, availability, and security above absolute profitability. Since the recently failed banks prioritized short-term profits, I believe one way to determine if your bank is making high-risk choices without your knowledge is to ask if they are using a mainframe.
As many of you do, I am concerned about the safety of my retirement fund, especially in light of recent bank failures. It gives me some extra peace of mind to know that they are with a company that has decided to use a mainframe. I’m not saying that a bank without a mainframe will be unsafe. But this decision could indicate a larger problem with the bank’s priorities, which would now be worrying given recent failures.