Wall Street spends heavily on IT, and Wall Street firms have been seen as innovative users of technology, so what does the financial services meltdown say about the efficacy of computer systems in areas like risk management?

Clearly, IT wasn't enough to save these companies from themselves.

And just as clearly, the technology was deployed in an environment where many other factors were in play. Regulatory failure and human nature seem like bigger culprits than faulty software in the current unpleasantness.

The smartest risk-manager I ever interviewed relied on some basic technology, along with news, anecdotes, common sense, and his gut.

But this report from the Counterparty Risk Management Policy Group says financial services technology is not up to speed. The CRMPG is an industry group that includes representatives of the largest banks; the report came out in August, back when that designation still included Merrill Lynch and Lehman Brothers -- both members of the team.

Two problems identified in the report are a lack of transparency, and a lack of interoperability between different companies. That's not quite risk management in terms of some kind of secret deal-analysis software, but it's a start.

In the private sector, greater financial discipline at individual institutions must be reinforced by a renewed commitment to collective discipline in the spirit of elevated "financial statesmanship" that recognizes that there are circumstances in which individual institutions must be prepared to put aside specific interests in the name of the common interest.

Such a commitment may require market participants to (1) make costly investments in infrastructure (human capital and technology) and (2) change business processes, and accept changes to market practices, that in the past have generated sizeable revenues but at the cost of weakening the underlying foundation of the markets. Costly as these reforms will be, those costs will be minuscule compared to the hundreds
of billions of dollars of write downs experienced by financial institutions in recent months to say nothing of the economic dislocations and distortions triggered by the crisis.

It's high-level stuff, but there is some drill-down:

In today's marketplace, vendors provide a variety of solutions to various aspects of the workflow and lifecycle - affirmation, confirmation, prime brokerage give-ups, portfolio reconciliation, etc. Often, solutions are not designed to be compatible with one another, with the result that participants must build out and support multiple technology integrations. Furthermore, required time to market on new products and life cycle events often lags market growth and innovation, and vendors face pressure to go live with phased or incremental solutions to remain relevant in the marketplace.

More: "Faced with the complexity of transactions and technology platforms that are often incompatible, firms can experience delays in confirming transaction details.