The conceptual model for a bank: The Connection-pipe model

The main objective of this blog is to design a resilient core banking system. 

In any design exercise, it is helpful to use a conceptual model.  A good conceptual model allows us to simulate/predict behaviors under conditions that have as yet not occurred. For example in Physics the model of gravity allows us to predict what would happen if a projectile were thrown with a particular velocity. 

The fact that a model is able to simulate/predict means that the information about the system is “codified” into the model. This property is extremely useful in System design.  The implication of this is that if we choose a proper model then the system that we build based on that model will be much more comprehensive then if we were to build a system based only on the observed behavior of the system.  This is because the set of observed behavior would always be less then universe of possible behaviors that a system may be exhibited to display in future.

From the discussion in the previous section, a connection-pipe seems to be a good conceptual model for banking.  Banking, or at least what we have discussed so far of it, is nothing more then an agency that connects Providers of capital to Borrowers of Capital. Therefore the connection-pipe model seems an appropriate model for banking

In the subsequent sections as we delve deeper into the nature of banking we will continue to test whether the connection pipe serves as an adequate model.  We will continue to improve upon the model.  If at some point of time we find that it no longer serves the purpose then we will abandon it in favor of a better model.

To design core banking then is to design the “connection pipe” that connects the lenders and the borrowers. 

There are two degrees of freedom available in the design of this connection pipe

(1)         The way the pipe connects between the borrowers and the lenders

(2)         The nature of connection between the participants and the pipe

We call the first the Connection-path and the second the Connection-types

The greater the flexibility a system provides in setting up Connection paths and Connection types the greater the resilience of the resulting system.