North American Bank IT Spending

This Financial Insights Perspective provides the FinSights Advisor's weekly perspective on the financial services industry. It provides financial institutions with timely guidance about maximizing one's technology investments. This week's issue focuses on the impact of the financial crisis on North American bank IT spending. Financial Insights and IDC have just completed a global review of IT spending forecasts, and this document provides an overview of the assumptions and forecast. This forecast was developed in October and early November, taking into account the dramatically lowered real GDP growth currently forecast. Financial Insights is predicting an overall reduction in IT spending for North American banking in 2009. This will mark that for the first time negative growth has been forecast for the industry since Financial Insights and its predecessor firm started forecasting IT spending. This industry has been very resilient, even weathering the 2002 downturn in IT spending with continuing growth that was not seen in the overall IT industry.

This time, it is the U.S. banking industry that is at the eye of the storm. For the first six months of 2008, the magnitude of bank failures, in terms of the size of failed institutions, is greater than at any time since the Great Depression. Financial Insights is forecasting negative growth in IT spending over the next five-year period, with the biggest hit occurring in 2009. As part of this forecast review, 2008 IT spending has also been adjusted downward. Institutions had tight budgets for 2008, and banks are reporting that actual spending will come in below budget. Some of the drivers for the lower overall spend in the forecast are contraction of the industry, increased embrace of outsourcing and offshoring, continued datacenter consolidation, and pressure on bank profits. Financial Insights and IDC are predicting economic recovery in late 2009 for banking and the overall North American economies.