The ongoing economic downturn is compelling banks to increase their focus on risk management solutions being offered by technology vendors, a report from research firm IDC said.

The IDC report said vendor risk management has been "forced" by the current economic crisis, with the tumultuous environment putting into question the viability and sustainability of vendors' businesses.

Other factors such as expanding regulation, a consolidating vendor landscape, and more stringent vendor selection guidelines have also pushed banks to strengthen vendor management practices, the report also said.

Leading banks have generally followed a cohesive framework of vendor risk management, with growing attention given to vendor due diligence to ensure that vendors will be able to sustain operations, especially amid the current crisis.

Banks are going beyond the cursory evaluation of annual reports, but are also looking more closely at other financial and performance metrics.

Evaluation of the vendor's corporate governance structure is also being taken more seriously, IDC said.

"The efforts of banks to look at operational risk practices, either on their own or as part of the broader Basel II program, have put IT risk high on the agenda," Michael Araneta, senior consulting and research manager at IDC, said.

He also said banks have recognized that technology failures, including the failure of technology vendors to deliver, can have dire implications for business continuity and their institution's reputation.

"As such, they are have raised the yardstick when assessing vendor risk," he said.

Araneta also said that vendors have become more mindful of fee structures and engagement margins.

Banks justifiably have to be on their guard for vendors drastically cutting staff levels as well as those showing declines in service-level agreement (SLA) compliance and performance.

Furthermore, as the IT department is pressed to justify technology spending, the vendor management office is compelled to spend more effort on vendor due diligence, monitoring, and scrutiny of SLAs.

"We applaud moves by several vendors to significantly improve corporate governance and transparency. Disclosures made by vendors to current and potential clients have become more detailed to include other client references, new wins, and other metrics for performance and delivery," Araneta said, adding that overall, the practice and standards of corporate governance have improved.

"It remains to be seen, however, whether changes are for the long-term or just coterminous with the weak economic climate," he said.