Investing in Lending Technology: IT Spending in Banking
66 Pages Posted: 6 Oct 2021
Date Written: October 5, 2021
This paper investigates lending technologies in the banking sector after the arrival of the information age, by examining investment in information technologies (IT) by U.S. commercial banks. Given the distinctive nature of banks’ dealings with information as they engage in lending activities, we link banks’ IT spending in various categories to different aspects of their lending technologies. Investment in communication IT is shown to be associated more with improving banks’ ability of soft information production and transmission, while investment in software IT helps enhance banks’ hard information processing capacity. By exploiting polices that affect geographic regions differentially, we show that banks respond to an increased demand for small business credit (mortgage refinance) by increasing their spending on communication (software) IT spending. We also find an asymmetric impact of technological development on labor employment in the banking sector.
Keywords: Information Technology, Small Business Lending, Mortgage Refinance, Communication Equipment, Software, Hard and Soft Information
JEL Classification: G21, G51, J24, O32
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