Bank bail-outs to hit IT spending and offshoring - TowerGroup

The injection of UK taxpayer's money into the ailing banking industry will create a two-tier system, according to TowerGroup, with recapitalised banks forced to adopt a low-risk business model. Those banks that have not accepted funding have a short-term market advantage with their higher tolerance to risk, says the analyst house, but economic and competitive uncertainties are likely to limit the strategic advantage that this implies.

TowerGroup suggests that the Government bail-out plan will have an immediate impact on technology spending across the sector, as bank's freeze their strategi spending on IT until mid-2009.

Tactical spending will be very focused at best, says TowerGroup, and banks and their technology vendors will have to examine closely how and where they can deploy technology made redundant as they exit and scale back selective lines of highly leveraged or capital intensive business such as securities trading and collateralised lending to hedge funds.

The rescue plan is also likely to have a knock-on effect to employment, with Government-sponsored banks being forced to pull out of offshoring and bring their call centres back to Britain, suggests TowerGroup.

However, nonbank banking operators such as supermarkets and auto financial services companies represent an unknown quantity that could be "severely disruptive" unless they are constrained by the same robust financial regulation the UK government is expected to impose on the banking sector.