The Banking Industry Is Spending Wildly on the Latest Tech
July 13, 2020
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It’s rare for an anonymous quote in a management consultant’s report to make much of an impression. But the admission by the chief financial officer of an unnamed global bank on the mystery that surrounds his own company’s technology spending is striking. It’s especially troubling for investors in the finance sector.
“I know 50% of my digital transformation spend is wasted — I just don’t know which 50%,” the CFO was cited as saying in an Oliver Wyman report on bank tech (in a nod to a famous old marketing quote). An executive also confessed to feeling “old-fashioned” when asking why there hadn’t been any profitable returns from their firm’s digital investments, adding to the sense that sound strategies are a rare thing in this field.
Behind this decoupling of markets and Main Street lies a familiar culprit: rich-world central banks. As they did after the 2008 financial crisis, the Federal Reserve, European Central Bank, Bank of England and Bank of Japan have pumped massive amounts of liquidity into their domestic markets. Those markets have rallied as intended and domestic investors, terrified at the prospect of missing out, have piled in. That in turn has forced institutional investors to search for yield in emerging markets.
If the entire process is disconnected from reality, that’s by design. The very purpose of unconventional monetary policy is to impose irrationality on markets.