The laggards could continue to stumble even after the recovery is underway. Financial-service companies have to adopt more pervasive risk-management frameworks if they hope to salvage consumer confidence. So says Needham, Mass.-based research and consulting firm TowerGroup, which is out with a note on the top 10 forces driving the financial-service industry now and into 2009.

"Aside from the continuing losses, credit exposures and liquidity constraints, the turmoil inflicted an even more severe trauma to many financial services institutions and the industry as a whole -- specifically the loss of public confidence and trust," says TowerGroup executive director Guillermo Kopp."Systemic inter-dependencies between risk types have created exposure levels that have transcended the financial clout of any single institution or jurisdiction and pose a threat to the industry and the economy."

To keep matters from getting worse, TowerGroup recommends that big firms aim to put in place transparent and timely gauges of liquidity and credit-risk positions to account for diverse and linked types of risk -- things balefully lacking now and in the run-up to the present crisis.

TowerGroup's report A Bumpy Flight, Landing, and Takeoff for the Financial Services Industry highlights the need for financial-service companies to initiate structural changes to put them on an even footing with nimbler competitors within and outside the industry. Among its observations are recommendations:

Polarization between leaders and laggards will continue to increase in aspects such as financial performance, client relationships and market-share gains Whether or not individual companies embrace innovation, advances in technology and business process continue relentlessly and will act as a catalyst for improved performance In emerging from the present shock, companies must integrate their risk-management systems, spread liquidity and credit risk, broaden sources of funding, and ensure they have an integrated and comprehensive view of their business transactions in real time To deliver optimal value to their clients, institutions must move beyond current defensive strategies to integrate processes, invest in advanced technologies, partner with an ecosystem of capable industry providers and continue to innovate Globalization is picking up speed and the world's economy is increasingly interdependent, so internationally minded companies need to adopt a genuinely multidirectional approach As IT budgets have become more constrained, companies must consolidate and rationalize technology resources to free up investment capacity for vital projects.

TowerGroup is a subsidiary of Purchase, N.Y.-based MasterCard. The research note goes for $1,750.00. -FWR

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