IT Strategy

Banking Crisis and IT Spending

August 19, 2008 by Raj Sheelvant

The multinational U.S. and European banks are in the news lately due to ongoing credit crunch.  All of them are desperately trying to recapitalize and stop their falling stock prices.  They are reducing headcount, getting rid of non-performing asset in an effort to survive a volatile environment of purging excesses they created.  You might be tempted to believe that banks are also in the process of slashing their IT budget to manage the cost.  But a poll by Temenos, the Swiss banking software group, of 336 industry chief technical officers and financial officers has found that more than 40 per cent of them expect their budget to rise by 5 per cent or more in 2008. Another 14 per cent expected their budgets to rise moderately while 32 per cent expected them to stay in line. Only 11 per cent thought their budgets would be cut. This according to Financial Times article “Risk will oblige banks to spend on IT”

Most of the respondents say that the increase in spending in IT budget is mainly due to credit crunch.  Due to increased regulatory overview, banks will have to spend more on IT to buy/build compliance software.   Also, banks want to incorporate ‘lessons learned’ from unbridled risk they took which led to the current mess they are in.  They are setting up ‘guardrails’ to prevent themselves from committing the same mistakes again.  Software automation will play a comprehensive role in creating those checks and balances within the banks.  Huge profitability in the past allowed the banks to be less efficient.  Banks are also very well known for being slow in adapting to newer technology.  Going forward the banks cannot afford to move at a slower pace.  They need to be laser focused on efficiency, improving profitability and reducing risk.  Implementing cutting edge IT infrastructure and software application will help them become more nimble and agile.
Banks need to evaluate every business process and eliminate all the ‘non value added’ processes.  They also need to be sensitive to their customers need, provide them with new and innovative financial products. All of this needs IT to play a pivotal role in the banking industry and I believe the current banking crisis will lead them to increase IT spending.  The banks that will survive this credit crunch will be lot different from the banks of today.

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