Tower Group is the latest research company to announce that there will be cuts in IT budgets for next year after the banking bailouts. Does this stand up to scrutiny as only a few short months ago most research firms were taking completely opposite stance, with some predicting significant increases. The credit crunch is hardly new news and one would have thought that expert market analysts would have already discounted the possible IT cuts way before the bailouts. It sounds like a bit of a reactive approach to announce cuts while the crisis is in full flow and banks struggle to come to terms with the magnitude of the situation they are in.

Indeed there is a genuine possibility that most financial institutions are going to have to undertake a complete review of their systems and assess weaknesses that will need urgent fixing.

Obvious areas that will need attention will be in the overall capability of the risk systems but we can also add client relationships, market trade and client reporting, data management and any number of enhancements emanating from regulatory checks.

The potential for a wholesale change to the market structure will also bring investment in new technology. The imposition of new regulatory barriers and more profound measurements of complex derivatives and the inclusion of market liquidity risk assessments all appear to be fundamental to rebuilding the industries financial systems.

I.T. Expenditure can be expected and (now backed by the government as shareholders) will be necessary if the banks are to try and prevent any reoccurrence of the disasters of the last decade. If solutions are to be found and implemented it does not sound like IT is going to be suffering too many cuts.

It's understandable that banks will be looking to cut as many costs as possible but I think this is more likely to come from restructuring, salaries and bonuses rather than the technology needed to prevent the mistakes of the past.

Of course it will take some time before there will be a new dawn in banking and there will certainly be a period of refection on the necessity of IT expenditure. Nevertheless, as banks begin to get on top of the IT solutions they need to protect their business and customers, they will have no choice but to release development funds. The question now is, how much time will it take them to assess their systems and architecture.