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

44 Pages Posted: 4 Feb 2020

See all articles by Nicola Pierri

Nicola Pierri

International Monetary Fund (IMF)

Yannick Timmer

International Monetary Fund (IMF) - Research Department; International Monetary Fund (IMF) - Financial Studies Division

Date Written: 2020

Abstract

Motivated by the world-wide surge of FinTech lending, we analyze the implications of lender' 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.

Keywords: technology, financial stability, IT adoption, non-performing loans

JEL Classification: G210, G140, E440, D820, D830

Suggested Citation

Pierri, Nicola and Timmer, Yannick, Tech in Fin Before FinTech: Blessing or Curse for Financial Stability? (2020). CESifo Working Paper No. 8067. Available at SSRN: https://ssrn.com/abstract=3531434

Nicola Pierri (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Yannick Timmer

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

International Monetary Fund (IMF) - Financial Studies Division ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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