Bank technology spending is expected to decline or rise only slightly next year, as a result of large-bank consolidation and layoffs, including those affecting tech staffs, two research firms say.

Financial Insights Inc. a Framingham, Mass., unit of International Data Group Inc. predicts that North American financial technology spending will drop 4% from this year, to $52.2 billion and that tech budgets will continue to decline by about 1% a year through 2012.

Jeanne Capachin, a research vice president at Financial Insights who presented the firm's findings in a Web seminar Monday, said in an interview last week that the spending cuts are largely coming from top-tier banking companies that are consolidating in response to the credit crisis.

"A lot of internal IT spending comes out" when banks merge, she said. "You don't need two CIOs."

Virginia Garcia, a senior research director at TowerGroup of Needham, Mass., an independent research firm owned by MasterCard Inc., said it is predicting that tech spending will rise in the United States next year at an "anemic" rate of 0.1%.

She cited similar factors as Ms. Capachin's and stressed that some areas, such as self-service channels, would get budget increases.

"The market doesn't stop for crisis, and business has to continue," Ms. Garcia said.

Both analysts said spending would increase on mobile banking technologies, because many bankers see that channel as one they need to develop.

"Banks feel … like they have to have a mobile offering now," Ms. Capachin said, so there will be more spending on things such as the mobile channel and less on things like teller systems.

Ms. Garcia said some large-bank branches will be shut down as a result of consolidation.

"In the past five years, there's been a major thrust in branch rejuvenation, so a lot of the spending and innovation that was going to occur has already occurred on a large scale," she said.

Spending on automated teller machines could increase as contracts expire and banks seek to upgrade to image-enabled machines, Ms. Garcia said.

Because many tech projects are of the keeping-the-lights-on variety, budgets can be allowed to fall only so far, she said, but downsizing has had an impact on bankers' ability to take on new projects.

A lot of the people who were handling negotiations with vendors are "just not there anymore," Ms. Garcia said. "It's a growing issue. It's one that can't be understated, considering the job losses we're seeing."

This aspect of the crisis has only recently begun affecting technology initiatives, she said. As recently as six weeks ago, "I didn't see projects get put on hold in quite the same manner."

Ms. Capachin said job cuts in the industry have disproportionately affected tech staffs.

"A lot of the folks that get let go are internal IT staff … so it's hard to get IT projects accomplished," she said. Even at companies that have not had layoffs, the prospect has had an effect on morale.

Tech staff members may have seen this coming, Ms. Capachin said. "In some ways, they're a bit used to it, because there's been the threat of offshoring" for years.

The concerns are valid, she said. "We think outsourcing will be a big area of growth" in the immediate future as bankers consider the idea of outsourcing more services to save money.

The trend is not as severe among regional and community banks, which "are actually well capitalized and see this as a great opportunity for them," she said. Since trouble began at the largest companies, customers have been putting more of their deposits into small banks that they perceive to be more stable, she said.

"The hardest-hit ones, as you might expect, are the Tier 1 banks," Ms. Capachin said, "so they're bearing the brunt of the decline."

Even so, banks of all sizes must be wary of — and budget for — whatever big regulations the crisis may be produce, Ms. Capachin said. "That's going to be huge, but it's the big unknown right now."

The regulatory recovery from the crisis is going to be a long process, she said. "There's plenty of blame to go around," so bankers may not have to worry about budgeting for it until late 2009.

Ms. Garcia said banks are already recognizing the need to put money aside.

"Compliance spending is on hold," she said. "What we definitely know for sure in our industry is that there's going to be a lot more regulation in light of what's happened. … A lot of banks recognize that they're going to have to spend money" to comply with those new regulations.