Banks as IT firms?

Mr. Worstall is arguing that banks are just IT companies with more money than the average:

But there is a very real sense in which a consumer bank should not really be regarded as a financial institution at all. It's a computing system which happens to do finance. Which means that the computing guys should probably have a great deal more influence over the management of the bank.

It's an interesting idea. I can see a couple of flaws but they are in the practice rather than the theory.

Mr. Worstall quotes the collapse of the RBS branch sale to Santander as an example of how pivotal IT is to whether banks can make their business work. It's certainly true that modern banking floats on computing, and in particular having robust (and secure) interfaces to data feeds, exchanges, other financial entities, and various web-based consoles for customer operations. If any of them go down for an hour or so, the bank can be looking at a big crimp in its operations.

The biggest difference between a bank and an IT firm, however is regulation. IT firms can do more or less what they want, modulo respecting privacy and data protection laws. Banks are regulated by their host country's government, various quasi-governmental financial regulators (Bank of England, FSA in the UK or Fed, SEC, FDIC in the USA for instance) and additionally local regulations in each country or market in which they operate. A good deal of bank IT beyond interfacing to other systems will comprise tracking, logging and measuring to ensure, and to be able to demonstrate, that the bank and its staff are complying with these various restrictions. There's also accountability to shareholders, which is much more direct in the case of a bank - they can lose huge sums of money in a very short time, either via incompetence or fraud, and so the major shareholders will want good visibility into the risk carried by the bank at any one time. By contrast, money loss in IT firms generally comes via poorly negotiated contracts and appears relatively slowly.

The major problem with turning a bank into an IT entity, however, is the matter of who's in charge. The financial rainmakers who rise towards the top of banks are notorious for having huge egos, brash personalities and a robust approach to inter-personal relations. Successful IT CEOs tend to have something of the introspective geek left in their personality. Those are two very different personalities, and there's only going to be one way that the reporting relationship will end up (well, OK, 3 if you count 'dismissal' and 'harrassment lawsuit'). Banks are always going to end up headed by obnoxious bankers, and IT are always going to be their whipping boys one way or another.

Which, incidentally, is why banks are so often victims of IT screw-ups - bankers are generally unable or unwilling to build and work with the IT department structure that actually aligns their interests. They end up getting IT yes-men who can play the political game but don't get the job done, or regular geeks that could make things work but can never persuade the bankers to part with enough money and power to make it happen.