Outsourcing by Financial Frims

Outsourcing is a concept that is very popular with today’s financial industry. It allows the industry to increase efficiency and increase cost savings. The firms can also increase customer satisfaction, which is a goal that companies are always trying to obtain. In the long run it allows firms to provide a better service to their clients. I am a strong supporter of outsourcing. I feel that it helps to build a stronger economy because it requires companies to specialize in certain areas of business and therefore not have to do everything by themselves. The decision to outsource is ultimately an opportunity cost, because a corporation has to give up something in order to gain more profit. However what the financial companies have to give up is the highly confidential information of the clients. This is part of the risk in the decision to outsource. Risk can take the form of three types, operational, reputational, and legal. However I feel that the marginal benefit of outsourcing is higher then the marginal cost of the risk, so if I were a financial president, I would have no hesitation outsourcing some operations of my company.

http://www.frbsf.org/publications/economics/letter/2004/el2004-34.html