Credit crisis to spur op risk IT spending - Datamonitor

The sub-prime crisis will spur banks to increase spending on operational risk technology from $754 million in 2007 to over $1 billion in 2010 - an average annual increase of almost 12% - according to the latest Datamonitor research.

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Credit crisis to spur op risk IT spending - Datamonitor

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Datamonitor argues that last year's credit crisis was exacerbated by an over-reliance on modelling and silo structures preventing aggregation of enterprise risk.

The credit crunch will provide the impetus for banks globally to re-evaluate their enterprise risk strategy and increase spending on operational risk management, says the report.

"More than ever, corporate directors, business executives and risk professionals realise that operational risk is critical not only for regulatory compliance but also for operational efficiency and effectiveness," says Damian Shaw-Williams, financial services technology senior analyst, Datamonitor.

Shaw-Williams says over reliance on models and the use of silo structures contributed to a lack of transparency, which resulted in a breakdown of trust as participants' exposure was unknown.

Furthermore, the modelling exposure to collateralised debt obligations (CDOs) failed to address the "highly leveraged" nature of many funds, leaving many exposed to any downgrades, he adds.

He says a re-evaluation of the modelling tools used will prompt banks to evaluate more powerful modelling platforms.

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