At best, this blog might serve as a warning signal that size can be a significant risk factor, not just to the soundness and safety of banks as regulators see it, but also as it concerns technology at very large banks.This is not a self-serving threat to any giant bank. I do not work for giant banks; I do not sell software or outsourcing services; I do not employ IT people. And more importantly, I am not trying to reinvent myself as the savior of anything. So call me an innocent bystander who just returned from a 30-day sweet vacation with some fresh discoveries. Self-employed people never turn off their business.
Definitions in the bank tech arena are in the mind of the beholder, not Wikipedia. So let me begin by defining the landscape.
There are 141 large U.S. banks starting at assets of $8 billion-112 commercial banks, 22 S&Ls, 4 credit unions and 3 credit card companies. The cutoff at $8 billion is not a rule, but rather a subjective conclusion that at this level, banks begin to develop IT attitudes that distinguish them from the behavior of the remaining 16,233 financial institutions.
There are 1,594 mid-tier banks that are neither fish nor fowl in that they are too big to use hermetically sealed vendor solutions, but not big enough to afford the luxury of the big guys defined as "anything goes." This is the tier that knows WHEN to shop; HOW to shop; WHAT to buy; HOW MUCH to spend; and WHAT TO EXPECT.
There are 14,639 remaining financial institutions that can be defined simply as small, under $500 million in assets. There's a subculture in this tier of about 879 de novos, established in recent years, that possesses huge banking skills that get lost by outsiders who look only at balance sheet footings. In my opinion, de novos are the industrial strength players that are focused on pure banking, play by the rules, and really take care of good customers. As long as I'm characterizing the small bank tier, I should add that numbers in themselves don't tell the whole IT story. The U.S. has about 13,000 smaller than small financial institutions (79 percent) that do not claim any special IT sophistication. Fortunately for them, the IT vendors that serve that space provide the sophistication, intelligence, wisdom, support and integrity that small FIs need to deliver cost effective solutions "easily." Please note that I use the term "easily" with great care. My favorite bank tech vendors make it look easy because they do the job for thousands of banks.
So now that I have given you the 50-cent tour of the bank tech landscape, is there any doubt that the giants are the most vulnerable? They need a kind of magic because of their diversification. They need one-of-a-kind sophistication that product vendors don't provide. They are using technology the architecture of which was created 50 years ago. An IT meltdown at a small bank and a meltdown at a $2 trillion bank is like a temporary power outage vs. a 9/11. And the giant banks are anything but stable right now, given the altruistic behavior of their CEOs to grow beyond their expertise and means in order to "save" the U.S. economy. With so much attention on bailouts, bank failures, stimulus tracking, insufficient lending and capital requirements, is anyone paying attention to giant IT reliability? I'd like to believe the CIOs are, but they're infected with "conversionitis" right now.
Stay tuned. Next week I'll cover the giants (50 of them) of the top 141. So how was your vacation?