Banks to cut back on IT spending

Banks will be keeping a closer eye on the pennies

The recent £50bn liquidity injection provided by the government to banks will trigger a period of limited IT investment across the sector until the second quarter of 2009, according to research from analyst TowerGroup.

The rescue plans will have long-term consequences for all banks, says the report, which predicts a "prominent business model difference" between companies that have accepted funding and those that have not.

Banks that have accepted taxpayers' cash will have to adjust to lower-risk strategies as the government will look into prioritising consumers and small businesses, whereas banks that have not accepted the bailout will have a short-term market advantage with their higher tolerance to risk, the report found.

This split means that strategic developments, such as IT investment, will come to a standstill for recapitalised banks while other institutions will adopt short-term tactical business plans.

"This bailout is as much a pull as it is a push. The solution will change the strategic landscape of the UK finance sector and create a clear divide in business priorities for those who have and have not received funding for the foreseeable future," said TowerGroup European research director Bob McDowall.

"But it will also have wide-reaching economic implications beyond the finance sector. This intervention should be regarded as an economic, rather than a financial, solution."