Information Technology and Bank Competition
73 Pages Posted: 14 Jul 2021 Last revised: 4 Feb 2022
There are 2 versions of this paper
Information Technology and Bank Competition
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: Suggested Citation
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
CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )
Poschinger Str. 5
Munich, DE-81679
Germany