Tech in Fin Before FinTech: Blessing or Curse for Financial Stability?
44 Pages Posted: 10 Jun 2020
Date Written: January 2020
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
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