Information Technology and Bank Competition

73 Pages Posted: 14 Jul 2021 Last revised: 4 Feb 2022

See all articles by Xavier Vives

Xavier Vives

University of Navarra - IESE Business School; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Zhiqiang Ye

University of Navarra, IESE Business School

Multiple version iconThere are 2 versions of this paper

Date Written: June 2021

Abstract

In a spatial model of bank competition, we study how information technology (IT) affects lending competition, stability, and welfare. The effects of an IT improvement depend on whether or not it weakens the influence of bankâ??borrower distance on monitoring costs. If so, then bank competition intensifies, which can reduce banks' profitability and stability and have an ambiguous welfare effect. Otherwise, competition intensity does not vary, improving the profitability and stability of banks and welfare. Banks will acquire the best possible IT if it is cheap enough; otherwise, different types of IT investment co-move in response to shocks.

Keywords: Bank stability, Big Data, credit, deposit insurance, Fintech, monitoring/screening, price discrimination, Regulation

JEL Classification: G21, G23, I31

Suggested Citation

Vives, Xavier and Ye, Zhiqiang, Information Technology and Bank Competition (June 2021). CEPR Discussion Paper No. DP16258, Available at SSRN: https://ssrn.com/abstract=3886727

Xavier Vives (Contact Author)

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://wwwapp.iese.edu/faculty/facultyDetail.asp?lang=en&prof=xv

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Zhiqiang Ye

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

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