Financial Regulation Affects IT Spending

According to an article I read on EWeek.com, titled “Financial Regulation Will Boost IT Infrastructure Needs in 2010,” it is believed that Obama’s strict financial regulations will directly affect IT spending. When reading the news these past few months, it has been impossible to escape article after article geared towards the government’s plans for financial regulation. After Obama’s extensive bailout plan, the country has been left with the ever increasing burden of the nation’s massive deficit, and U.S. citizens are wondering when it will stop.

In response to the inquiries of many discouraged citizens Obama has began to tighten the reins on the country’s financial sector. In the Financial Reform Bill passed in December 2009, the government called for the creation of a new organization called the Consumer Financial Protection Agency, geared towards regulating financial services firms. (http://www.politico.com/news/stories/1209/30497.html) This organization would reinforce the ban on unjust credit rate increases, set strict guidelines/requirements for loans, and regulate mortgage lending, to name a few items. (http://www.gather.com/viewArticle.action?articleId=281474978025795&grpId=3659174697244817) With the increased regulation of the Consumer Financial Protection Agency and other government initiatives, as mentioned, there is an increased demand for technological capabilities to track these restrictions/guidelines. For this reason, it is expected that IT spending will boom given acceptance of these government initiatives.

EWeek.com’s article focuses on the expected demand for IT infrastructure while also considering that many firms have restricted their spending. Therefore, while IT companies may experience higher demand for their products, there is also a strong concern to minimize costs in attempt to offer their IT products for lower prices, making them more marketable to large firms with low IT budgets. Companies such as SAP have already begun taking their customer’s considerations into account before moving forward with research and development. (http://www.eweek.com/c/a/Finance-IT/Financial-Regulation-Will-Boost-IT-Infrastructure-Needs-in-2010-Says-Analyst-115405/) So the question arises- who is in charge here? Will the IT companies benefit in the end, earning higher profits, or are the financial firms, despite increased government regulation, going to remain the frontrunners?

I think this is a tough question to answer. Given that policy is constantly changing and new financial regulations seem to be tossed around, companies may be reluctant to spend money implementing new IT infrastructure that will become obsolete within a year. Additionally, many of the firms feeling the pressure of Washington’s increased financial regulation are the large banks such as Goldman Sachs and Bank of America, who are suffering from an earlier repayment of TARP funds while also contributing to the “repayment” of TARP funds through Washington’s new taxation laws. This seemingly “wise” plan to lower the national deficit in actuality is hurting companies that would have otherwise been profitable. Furthermore, Obama’s favoring of small businesses may hurt large institutions and thus contribute to a lowering of available funds to budget IT spending.

But, despite the potential losses IT companies may incur from the decreased spending of large financial institutions, companies such as Oracle and SAP have restructured their business model to sell their products to smaller/mid-sized business who are going to be the recipients of government aid/incentives (decreased taxation, facilitated access to loans, etc.). This is a smart move for IT companies in harsh economic times. Small businesses may yet overpower previously dominant firms. By capitalizing on governmental policies in more than one way, IT companies just may have a chance to reap large gains in 2010.

Article: http://www.eweek.com/c/a/Finance-IT/Financial-Regulation-Will-Boost-IT-Infrastructure-Needs-in-2010-Says-Analyst-115405/