Banks’ Risk IT Spending to See Modest Growth

Bank IT spending is likely to come under greater scrutiny as the credit crisis continues.

As the credit crisis continues with no end in sight, banks have been forced to adopt a cautious and thrifty approach to spending. And experts agree that IT spending will come under greater scrutiny, even around risk-related technology.

"Global risk technology spending growth will be more modest," predicts David Howard-Jones, a partner with New York-based Oliver Wyman's strategic IT and operations practice. "It will be around 6 percent instead of the 8 and 10 percent that we saw in recent years."

However, there will be global regions outside the U.S. that will see healthy spending on risk technology, he adds. While the U.S. will see the lowest growth in risk tech spending by banks, at around 2 percent, Howard-Jones says, the Asia/Pacific will see spending growth in excess of 15 percent. "This is partly due to the fact that many institutions there still need fundamental risk technology," he explains.

But cost cutting doesn't necessarily mean banks will completely stop spending, Howard-Jones adds; they'll just spend smartly. "You'll see more cost review programs," he says. "Risk technology dollars will be spent more wisely."

Silver Lining

Dan Schutzer, executive director of the New York-based Financial Services Technology Consortium (FSTC), says that's actually the silver lining to the credit crisis. "In this kind of environment, people make hard decisions and become innovative — as long as the ideas are for concrete projects," Schutzer comments. "If IT takes a proactive leadership role and explores other opportunities, it can gain more efficiencies for the bank."

According to David Rogers, global product marketing manager, risk, with SAS in Cary, N.C., banks will only spend what they have to. "It's important to remember that a lot of their investments in Basel systems are just now coming online," he explains. "Our research shows there's a certain amount of regulatory fatigue in the spending banks needed to undertake for [risk-related] initiatives."

Rogers points to the recent news from New York-based Citi ($1.8 billion in assets) that it will slash its IT budget. "[Banks] are constantly looking at IT issues. ... It's not just about the IT budget, but looking at how they can reorganize and improve processes and use information better. You want to make the systems fit into the overall needs of the organization."