Avoiding "reputation risk" is a common justification for increasing security measures, protecting customers' financial information and reporting security breaches in a timely manner. But now more than 18 months after the big ChoicePoint incident when 163,000 bogus accounts were created by ID thieves, the doom and gloom that financial services risk professionals have predicted has failed to come true.

It's true that financial services firms have done a fairly good job of protecting personal data, especially when compared to some other sectors - including government, retail and education. In fact, most of the more recent reports of personal data that has been "compromised," either from hackers, lost tapes or stolen laptops, has come from various federal and local government organizations, retailers and universities.

For instance in November alone it has been reported that the IRS has lost 478 laptops since 2002, of which 112 computers had sensitive information. The New York City Administration for Children's Services dumped case records in a dumpster. Many of the records had personal information about children and police officers. Starbucks lost four laptops with 60,000 current and former employee records. And the University of Virginia sent 632 Social Security numbers to the wrong 632 students via e-mail. The mistake was blamed on a computer glitch.

For an IT risk management professional, the continuous string of data breaches, thefts and blunders should be a good thing, as it keeps the topic of data privacy and security on senior management's radar screen. But with the public tuning out the news that personal data is being lost almost daily by a variety of organizations, the doom and gloomers are being called out. Where's the so-called reputation risk that everyone is so concerned about?

And because of the public's reduced sensitivity to reports of personal data breaches, it takes a much more serious data breach for consumers to turn away from a particular institution. True, many of the initial data breaches that were reported in mid-2005 and even early 2006 garnered front-page coverage in the Wall Street Journal or New York Times - the equivalent of six-point-o earthquake on the reputation risk scale.

But now, some pretty major personal data thefts are buried deep in the papers, if they are covered at all. When E*Trade Financial took a hit of $18 million in its 2006 third quarter earnings because of a pump-and-dump scheme started by ID thieves using key logging software, only bloggers and industry specific publications picked up on the news. TD Ameritrade was also hit by the same scam and reported a $4 million hit in its latest quarter. The media coverage was also virtually nonexistent.

So this means that the "reputation risk" card carries much less punch, now that consumers are content to have 97 million personal data records exposed since February 2005. Going forward, risk managers will need to rely more on the actual costs associated with data breaches, rather than play the reputation risk card.

It doesn't mean that the risks and the associated clean-up costs aren't substantial. E*Trade, for instance, used the $18 million to repay account holders. Same with TD Ameritrade's $4 million. The first time a security breach hurts the financials, it's a learning experience and firms generally work hard and fast to shore up any potential holes. The second time ID thefts hurt the quarterly results, you can be sure the CFO and CEO will be asking many pointed questions.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio