Its normal practice for financial services firms to immediately cut costs and budgets when a financial crisis hits. In my time working in banking I can remember on many occasions when some form of crisis appeared that the first reaction was to freeze expenditure,
the next was to cut costs the third was to prioritise and then cut again. The finance industry will soon be entering the prioritise stage and this will eventually end with a period of reflection before stability begins to bring some sort of normality. This
type of recovery process has been the case in every single crisis and I see no reason why it will not follow in today's financial crisis.
After this rather reactive phase of managing through a crisis, the next and most important step is to try and start to move forward. This is often dependent on the number of business risks that banks are willing to take. To start building growth risk capital
is vital and with depleted reserves the banks will have to find other ways of funding growth. Expect a high degree of activity in corporate finance over the next ten years as the search for capital will be frantic. This will also stretch the minds of corporate
financiers to become more imaginative in producing new types of corporate products. Equally there will be a need for the market to have corporate actions capability in both people and systems.
Risk will be a dirty word in banking for some time but in reality the old adage ‘no risk no reward' will encourage banks to venture carefully into risk territory once again and baring mishap, and assuming success they will push on even further.
Success breeds success and in no time we will find banks following each other and competing heavily for market share. If this sounds familiar it should, as it maps a similar process that banks went through after the last big recession in the early nineties.
The difference might be that new regulations will be in place to ensure greater banking capital adequacy and greater controls around risk based instruments.
All this growth activity will fuel I.T. requirements especially as new regulations are likely to throw emphasis on more acute management and greater integration of data. The ‘know your customer' requirements introduced under MiFID will certainly be made
more stringent and regulatory reporting will probably be on a more consolidated corporate basis, covering banking head office and all the international branches..
This will mark the beginning of banks hiring more contract and permanent I.T. staff, not long after the costs of redundancy and contract termination reduced numbers.
New system developments will fuel procurement and new technology will be required to replace legacy systems, which have proved incapable of supporting the financial services industry and not before time, will finally be ditched.
In this new era of boom the new risk that financial institutions must be aware of is that brought by I.T. The
risk of mass systems enhancement and replacement by a workforce of new employees, will threaten the business continuity of the firm. However, there are solutions to help manage this problem
and these will need to be employed to keep risk to a minimum.
This forecast is based on historical facts and the only question that cannot be accurately predicted is how long it will take to get to the boom. History has a habit of repeating itself and is a sound base for estimating the future. Even in this unique current
crisis lessons can be learned.
There is no doubt that this is the worst financial crisis the world has ever seen with even the 1929 Wall Street Crash dwarfed by the global scale and speed of the market downturn and economic recession. However, we can draw some comfort and confidence that
there will be an end to uncertainty and fear in due course and that growth and profit will return. After all it's all happened many times before!