Want to Know Which Bank Will Fail Next? Check Employees' Email Habits

This is brilliant: using email traffic to predict a coming crisis. Two computer scientists in Australia got their hands on 517,000 emails sent by Enron employees in the 18 months before the company's demise. They found that about a month before the collapse, communications patterns changed drastically: employees got more clique-y.

For example, the number of active email cliques, defined as groups in which every member has had direct email contact with every other member, jumped from 100 to almost 800 around a month before the December 2001 collapse. Messages were also increasingly exchanged within these groups and not shared with other employees. [The researchers think they] may have identified a characteristic change that occurs as stress builds within a company: employees start talking directly to people they feel comfortable with, and stop sharing information more widely.

If their findings hold up, it means we could have a better idea of which companies are in critical danger, and we could do so without violating anyone's privacy. The researchers didn't even look at the content of the emails, and didn't even need to know the names or titles of those who did the sending. They merely cared how patterns changed and how groups morphed.

And of course, this research was based on a case study from 2001, which feels like centuries ago in terms of our digital connectedness. I'd imagine today's data is far more revealing. Think what a smart researcher could do with the Lehman Brothers email traffic?

This could be a great tool for the Federal Reserve or SEC or whatever new regulatory body gets the power to oversee "systemically important" institutions.