Tech in Fin before FinTech: Blessing or Curse for Financial Stability?

January 17, 2020

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Format: Chicago

Nicola Pierri, and Yannick Timmer. Tech in Fin before FinTech: Blessing or Curse for Financial Stability?, (USA: International Monetary Fund, 2020) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Motivated by the world-wide surge of FinTech lending, we analyze the implications of lenders’ information technology adoption for financial stability. We estimate bank-level intensity of IT adoption before the global financial crisis using a novel dataset that provides information on hardware used in US commercial bank branches after mapping them to their parent bank. We find that higher intensity of IT-adoption led to significantly lower non-performing loans when the crisis hit: banks with a one standard deviation higher IT-adoption experienced 10% lower non-performing loans. High-IT-adoption banks were not less exposed to the crisis through their geographical footprint, business model, funding sources, or other observable characteristics. Loan-level analysis indicates that high-IT-adoption banks originated mortgages with better performance and did not offload low-quality loans. We apply a simple text-analysis algorithm to the biographies of top executives and find that banks led by more “tech-oriented” managers adopted IT more intensively and experienced lower non-performing loans during the crisis. Our results suggest that technology adoption in lending can enhance financial stability through the production of more resilient loans.

Subject: Banking, Financial crises, Financial institutions, Financial sector policy and analysis, Financial sector stability, Loans, Mortgages, Nonperforming loans

Keywords: Adopters lending, Adoption bank, Bank characteristic, Financial sector stability, Financial Stability, Global, IT adopter, IT adoption, IT expenditure, IT intensity, Loans, Mortgages, Nonperforming loans, Non-Performing Loans, Technology, Technology adoption, WP, Year dummy

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/014
Stock No:

WPIEA2020014
ISBN:

9781513519258
ISSN:

1018-5941

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