Basel 2 will drive IT investment

After three years of cost-cutting and modest IT investment, banks face a daunting backlog of challenges.

After three years of cost-cutting and modest IT investment, banks face a daunting backlog of challenges.

These include updating the bulk of IT systems, running services round the clock across multiple channels, such as electronic, call centre and traditional branches, and meeting a new raft of complex industry regulations.

"Many banks still have core banking systems [including planning, procurement and multiple channels] that go back 10, 15 or more years," said Jost Hoopermann, vice-president at Giga Research.

"These IT architectures are not really suitable when banks merge, for example, because they are not easy to change."

When updating IT infrastructure, banks can buy multi-channel banking software and use emerging technologies such as web services to make systems more responsive.

The cost to established banks of overhauling their main systems could range between £136m to £300m, Hoopermann estimated.

Forthcoming industry regulations, such as the Basel 2 code on risk management and international accounting standards, will also boost spending on IT.

Basel 2 is due to be implemented by the end of 2006. Analysts have estimated that compliance projects at the larger banks will cost up to £100m, including IT and business costs.

IT challenges include linking a maze of banking databases and reporting systems, updating older applications and ensuring data is accurate.

"You could compare the scale of Basel 2 to old euro and Y2K projects," Hoopermann said.

Read more on IT legislation and regulation

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