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Jim Eckenrode Global Banking Research Fellow, TowerGroup
Jim Eckenrode Global Banking Research Fellow, TowerGroup
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Exclusive TowerGroup Research Report: Bank Tech Spending in 2008

Though banks' IT budgets are likely to shrink if economic conditions worsen, demand for technologies that improve efficiency and integration, client engagement, and security and fraud management will continue.

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In light of the current market turmoil, North American banks appear to be approaching technology planning and budgeting for 2008 with caution. To date, the current economic environment has had a mixed impact: Banks that were greatly affected by investment and credit writedowns are adjusting their plans accordingly.

Those not as involved in securitization and subprime lending seem to be continuing "business as usual" with regard to technology spending plans for this year. Of course, all banks are closely watching both corporate and consumer activity and the consequent demand for credit because any prolonged downward trend will affect their profitability -- and thus spending plans -- more broadly. So stay tuned.

Overall, however, TowerGroup's research indicates a general retrenchment in spending. Of particular note are two themes. The first is plans to increase IT staff levels in the short term. The second is a move to spend more on maintenance activities associated with existing applications infrastructure than on new technology. This general observation must be qualified in some specific areas discussed below in which increased spending on either new or upgraded applications was noted.

Looking to the future, bankers will regain an optimistic view. Budgets for 2009 will return to a more normal growth pattern, and any reductions in 2008 will in essence be compensated for by a resumption of spending as the economy recovers from the credit crisis that began in 2007.

Our research suggests some specific areas of interest for technology investment at both the corporate and line-of-business level. Despite some variations observed in bankers' projections of overall IT budgets for 2008, the bankers were fairly clear in their desire for investment in areas that will drive efficiency first, but also growth for their business lines.

Corporate Investments: Pushing for Efficiency

The research results indicate a strong move toward efficiency in technology investments for 2008. Given the current environment of massive write-offs in much of the banking industry, and given declining stock prices and weakening consumer demand and housing prices, this focus is hardly a surprise. But as is reflected in the line-of-business priorities, spending for growth will not be forgotten in 2008.

At the corporate level, bankers clearly will be pulling the efficiency levers in the upcoming year. Of primary interest are investments in three areas: modernization and/or replacement of legacy core technologies to reduce maintenance and development dollars; enhanced pursuit of sourcing relationships to free resources to focus on differentiating activities; and improved fraud prevention and management solutions to reduce losses.

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