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The repeal of Dodd-Frank will create a flury of innovation in the U.S.

Dodd-Frank legislation created a heavy compliance burden for financial insititutions. Hundreds of billions of dollars have been spent on compliance and fines. Most banks' IT budgets today have a ton of compliance projects. Some banks are spending 35% to 50% of their IT budget on compliance alone. Aside from the IT spend for compliance the number of bank personnel assigned to compliance has risen exponentially.

The new Trump administration wants to repeal Dodd-Frank. What are the consequences if they do so? There are many. First and foremost is the development of a new set of banking leaders that will be driven unencumbered to innovate. What will drive this new wave of innovation will be the ability to shift IT resources from compliance efforts to financial innovation. Also, funding for personel will shift from compliance to revenue producing areas.

Image a bank with a $1 billion IT budget. Let's say 40% is dedicated to compliance and the repeal of Dodd-Frank results in a 50% reduction in administrative burdens. That means 20% of the budget can be allocated to other things. In this case the bank has an extra $200 million to spend.

My prediction is if Dodd -Frank is repealed there will a dramatic shift in IT spend. You'll see banks rebuilding their aging infrastructure and developing new innovative services. Fintechs will play a big role in helping banks rebuild their infrastructure since many of the banks' resources have been depleted following the great 2007 recession.

Bank will need to retool its IT human resources. Next generation leaders need to embrace balanced risk to deliver innovative services. One thing is for sure and that is banking will become fun again.

What do you think?

 

Note: The views presented here are Gerard Hergenroeder's, and do not necessarily represent IBM's.

 

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