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

44 Pages Posted: 10 Jun 2020

See all articles by Nicola Pierri

Nicola Pierri

International Monetary Fund (IMF)

Yannick Timmer

International Monetary Fund (IMF) - Research Department; Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: January 2020

Abstract

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.

Keywords: Financial crises, Macroprudential policies and financial stability, Financial markets, Financial institutions, Financial systems, Technology, Financial Stability, IT Adoption, Non-Performing Loans, WP, pre-crisis, GFC, non-performing loan, Rajan

JEL Classification: G21, G14, E44, D82, D83, E01, G2, F16, P

Suggested Citation

Pierri, Nicola and Timmer, Yannick, Tech in Fin Before FinTech: Blessing or Curse for Financial Stability? (January 2020). IMF Working Paper No. 20/14, Available at SSRN: https://ssrn.com/abstract=3623873

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

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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