IT spending on solutions that enable banks'capital adequacy
- driven by new Basel 2 regulations - is expected to absorb about 9% of Western Europe's total banking IT spending in 2006.
This will significantly contribute to the overall growth of IT spending in the banking sector over the following years, according to IDC.
Starting from 2004, banks are expected to dedicate a larger part of their IT budgets to the adaptation of their IT systems to the new Basel 2 requirements and, in particular, to the development of risk management solutions. In order to ensure the correct identification and risk measurement, European banks must ensure that risk management becomes a more structured process. In particular, banks will initially focus on credit risk management, which is perceived as key in the short term, while operational risk management represents a major challenge in the longer term.
"Basel 2 is expected to strongly impact future banking strategies and IT will play a central role in supporting banks in complying with the new regulatory requirements. In Europe, the effects of the new regulations will be especially extensive due to the European Commission's plan to extend the new capital requirements to all European banks with a new directive called CAD 3,"say analysts.
"This impact will not diminish when Basel 2's adoption becomes compulsory in 2007. This is a large scale project and IT vendors need to build long-term relationships with banks to better exploit this opportunity."
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