Banking Technology Cycle

Once the most aggressive users of IT, financial institutions have

learned to make do with less. But few can go on cost-cutting

indefinitely. Computer- and telecoms-makers could soon be feasting again

WAS it merely three years ago that the entire financial world was

moving everything it could on to the internet as rapidly as possible?

People were going to bank and trade shares as well as get insurance and

loans all through a browser, preferably the one on a mobile phone. No

one would write cheques ever again.

Some of that actually came to pass--albeit in parts of Europe and East

Asia. But for the rest of the world, banks, securities firms and

insurers have too many pressing problems on their hands to think about

implementing grand online schemes. All their technological developments

now focus on cost-cutting, improved system integration and (believe it

or not) the revival of old-fashioned branch networks.

For makers of computers, storage devices and high-speed networks, that

is grim news. The fact is that no other sector of the global economy

drives capital spending on information technology (IT) as much as the

financial-services business does. Until that recovers, the IT slump

will continue.

By and large, financial-services firms get good returns from IT. In

the hoary debate over whether IT improves productivity, even naysayers

agree that, at least in financial services, it demonstrably does so.

That has been particularly true for investment banks, where program

trading has been moving markets since the mid-1980s. So effective were

the buy/sell software suites developed by a handful of American

stockbroking firms that Japanese authorities hurried out new

regulations to prevent the foreigners from cleaning up. Since then,

technology for speeding access to share prices, trading volumes or even

the latest market-shifting rumours has contributed handsomely to Wall

Street profits.

But the three-year economic downturn has...