In the face of billion dollar write-downs and massive personnel reductions, Wall Street firms continue to increase their technology spending, according to a recent survey conducted by IBM in conjunction with the Securities Industry and Financial Markets Association (SIFMA). Of the 500 IT professionals within the financial markets industry that responded to the survey, about 200 were from leading Wall Street firms (universal banks and brokers/dealers) and the other 300 were from technology vendors, consultancies, infrastructure companies and other specialists that support the financial markets industry.
When Wall Street firm respondents were asked to contrast their IT budgets from 2007 to 2008, one-third suggested that their 2008 budgets had increased. That sentiment continued when asked about their IT budgets for 2009. The majority of IT budgets were expected to remain the same and/or increase in size going into 2009, easing most of the IT budget declines that might have been experienced between 2007 and 2008. In fact, smaller firms on Wall Street intend to be particularly aggressive, with half anticipating increased IT budgets in 2009 against only 8% who anticipate a decrease.
"Although the majority of survey respondents believe the sub-prime crisis was caused by factors unrelated to technology, this crisis is serving as a catalyst to increase the amount of money invested in technology/risk management initiatives," said Randy Snook, Sr., managing director and executive vice president of SIFMA. "At our member firms, people are being asked to do more with less and rely more heavily on technology. It is clear that changes are needed in our industry and that technology is an integral part of the answer but not the only answer. The anticipated technology investments are one of several important building blocks necessary to mitigate the financial impact of future disruptions."
While firms see risk-modeling and data mining/predictive modeling technologies as key areas with potential to drive significant business/operating model changes, most (67%) cite risk transparency as the primary future regulatory action impacting IT.
"Almost universally there is a recognition that further investment in risk-modeling is required in order to enable greater risk transparency, not only as a business imperative, but also in anticipation of future potential regulatory requirements," said Ian Hurst, general manager, IBM financial services sector. "However, with all firms focusing on this simultaneously we foresee a skills shortage and a battle for talent in the risk arena."
Key challenges cited by the Wall Street firms included implementation costs, given the complexity of enabling greater risk transparency, and limited IT staff/human capital with key IT and risk management skills being in short supply. This is expected to lead to a war for talent in this area, just as automation and rationalization are leading to thousands of job cuts in other areas.