Big Tech 'Banks', Financial Stability and Regulation

16 Pages Posted: 15 May 2020

Date Written: April 20, 2020


This paper considers the financial stability risks caused by Big Tech’s entry into retail banking and discusses alternative policy responses aimed at allaying those concerns. The entry of Big Tech platforms may transform the retail banking industry in radical ways: while it may spur much-needed competition in the short term, it may also increase financial instability and lead to even more concentrated credit markets in the long-term. Importantly, traditional banks may be forced to transform into “narrow banks”, limited to funding the loans originated and distributed by the Big Techs. The separation between origination and funding has proved problematic once and again, from the S&L crisis of the 80s and 90s to the financial collapse of the Great Recession. This time need not be different. Whether this grim prospect materializes, though, will depend on several factors, including how regulators respond to the new challenges posed by the entry of Big Tech “banks”.

Keywords: Big Tech Platforms, Consumer and SME Lending, Financial Stability, Narrow Banks, Regulation, Retail Banking, Run Free Banking, Sovereign Money

JEL Classification: G21, G28

Suggested Citation

Padilla, Jorge, Big Tech 'Banks', Financial Stability and Regulation (April 20, 2020). Available at SSRN: or

Jorge Padilla (Contact Author)

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046

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