31 October 2017

EBF: Banks invested over €18 bln in software in 2016

Survey results released by the European Banking Federation shows that European banks last year invested more than €18 billion in software, despite being forced to accept prudential rules that require software investments to be treated as costs instead of an investment.

The survey, conducted to bring clarity on the size of these investments, shows that European banks invested more than 18.2 billion euro in software in 2016. The EBF survey was conducted voluntarily and is based on a sample of 108 banks of different sizes with different business models in 12 European countries.

Software has become a core asset in bank business models and banks are recognized as significant investors in software and information technology. Some projections in recent years placed the total IT investments by European banks well above €50 billion per year, a significant part of which was invested in software.

The current regulatory capital framework for credit institutions in the EU treats software as a cost rather than an investment, stifling innovation in financial services. Prudential rules do not recognize the value for capital purposes, despite evidence indicating that software has value even in the case of liquidation of a bank.

European banks instead are required to match their software investments with an almost equal amount of capital to maintain their capital ratios. This requirement makes software investments by a European bank more expensive when compared to other competitors such as Fintech and US banks, distorting the level playing field in global banking.

Because of the existing rules, roughly every euro that an EU bank invests in IT, be it for innovation or cybersecurity, needs to be backed with one euro of the most expensive category of funding. This is not only a significant disincentive for investments but also leads to unfair competition between major players as well as jurisdictions.

Press release

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