Basel II rush to drive $4bn banking IT spree

The last minute rush by European banks struggling to comply with the new Basel II risk management regulations will drive almost $4bn of technology spend over the next two years, according to a new report.

Analyst house Datamonitor is forecasting Basel II spend of $1.9bn this year and $2bn in 2005 in its latest report Credit risk management and Basel II in European financial services: Getting ahead in the B2 implementation space.

The UK is rated as "middle ground" in terms of its preparedness for the regulations, with Switzerland and Germany heading the pack and France and Italy holding up the rear.

Preliminary activities such as regulation interpretation and business impact planning in banks are now giving way to IT implementation, according to the report.

Cubillas Ding, senior analyst at Datamonitor, said most of the software purchases will be around databases, datawarehousing, risk analysis calculations and credit scoring as the spending begins in earnest.

"The larger banks are generally well-prepared. Building societies are now coming into play and getting IT initiatives off the ground," he said.

Just last month Barclays CTO Kevin Lloyd told silicon.com that Basel II along with Sarbanes Oxley and new International Accounting Standards (IAS) was taking up 40 per cent of his time and Ding warned that implementation is complex, especially with global institutions.

"Some of the challenges are around data for risk calculations – is the data available, consistent and to the right level of detail," he said. "Other areas of complexity are orchestrating and co-ordinating initiatives like this with international business units."

The deadline for the IAS is 2005, with Basel II compliance set for 2007.