You can sense it in the market: blame the technology for the failings in the financial industry, the billions and billions in writedowns and the collapse of confidence among the investing public. It should be so easy. Technology, notably risk modeling and analytics, is not what caused the credit crisis; the painful truth is that an absence of judgment did. And it will be innovation that lands the industry on its feet again, thanks in no small part to the efforts of those who recognize its transformative effects.

Key words for The Bank of New York Mellon's Kurt Woetzel these days: flexibility and enterprise (in that order). Ranked No. 1 this year, Woetzel's charged with leading a technology organization that must respond quickly, reliably and securely during these volatile times, and safeguard $1.1 trillion in assets under management. He's a process junkie who also embraces diversity of thought, something that helps him deliver results across the enterprise.

He's not alone. In its seventh-annual ranking of The Innovators - 25 people, companies and technologies that represent the most progressive thinking in financial services - Bank Technology News considered 200 companies, looking for technologists and technology shops whose clarity of vision and call to action is proving to be good for what ails the industry during its big cleanup and setting direction for the future.

Former Senator George Allen (R, VA) once observed that "we should favor innovation and freedom over regulation," a balancing act the industry is now managing as the lines of capitalism are blurred, and the unprecedented involvement of the federal government remakes the global financial system. It's also pushing executive teams to test the limits of expense management, and technology is usually on the short list of "to be cut."

To wit: Nearly half of U.S. and European financial services firms have cut their technology budgets this year due to the economic crisis, according to a recent survey from Forrester Research. Its Business Data Services report surveyed nearly 950 senior IT managers across North America and Europe, 17 percent of whom work for financial firms.

Among the key findings: Banking is the most likely industry to respond to market turmoil by slashing IT costs, with 49 percent of respondents saying they have already cut their budgets, compared to just 39 percent for the media, entertainment and leisure industries.

And as large companies across all industries look to slash expenses, one alternative growing in popularity is offshoring, with 43 percent of respondents saying they are looking to offshore certain operations in the near future, compared to only nine percent who currently do so.

The reason? Banks are looking to outsource operations as a way of deferring investment in their technology infrastructures, according to June findings by business advisory firm EquaTerra. It also found that tough economic conditions will contribute to annual spending rises of between seven and eight percent in financial services outsourcing over the next five-to-seven years.

The consequences of these cuts and outsourcing should be a red flag for every North American financial institution. For while the industry sorts itself out-pushed and pulled along by regulators-technology innovation and business must carry on. Why? In the near term, institutions are expecting regulators to come down hard on them, according to Forrester, and that is translating into investments in application support, business continuity, security and server hardware.

What will life look like after the fall? Innovation is the engine that fuels great strides in financial services, opening up new markets locally and globally, changing user behaviors across channels and moving society forward. Whether it's mobile banking that connects people to financial services in the most rural locales or text alerts on cell phones to block attempted fraud being committed halfway around the world, innovation is driving change.

The future is being shaped by technologists whose understanding of the power of innovation identifies new business possibilities, redefines what constitutes competitive advantage and spies what's imperfect, inadequate or, quite simply, outlived its usefulness. But to what end executives use innovation is another story - and it rarely has anything to do with the technology itself.

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