Tech in Fin before FinTech: Blessing or Curse for Financial Stability?
IMF Working Papers, January 17, 2020
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- Tech in Fin before FinTech: Blessing or Curse for Financial Stability?
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Bibliographic details
- Authors: Nicola Pierri, Yannick Timmer
- Published: January 17, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513519258.001
Overview
- Motivated by the world-wide surge of FinTech lending, the paper analyzes implications of lenders’ information technology adoption for financial stability.
- Main conclusion: technology adoption in lending can enhance financial stability through the production of more resilient loans.
Key findings
- Banks with a one standard deviation higher IT-adoption experienced 10% lower non-performing loans when the global financial crisis hit.
- 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:
- High-IT-adoption banks originated mortgages with better performance.
- High-IT-adoption banks did not offload low-quality loans.
- Management analysis:
- A simple text-analysis algorithm applied to biographies of top executives indicates banks led by more “tech-oriented” managers adopted IT more intensively and experienced lower non-performing loans during the crisis.
Methods and data
- Estimation of 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.
- Use of loan-level mortgage performance data to assess origination quality and offloading behavior.
- Application of a simple text-analysis algorithm to executive biographies to construct a measure of managerial “tech-orientation.”
Implications for financial stability and policy
- Evidence suggests IT adoption in lending can be a stabilizing force by producing loans that are more resilient in a crisis.
- Managerial tech-orientation appears to be a driver of IT adoption and associated stability benefits, implying potential policy interest in managerial incentives and governance related to technology investment.
- Findings caution against assuming that technology-driven lenders are necessarily more exposed to crisis risk via observable channels such as geography, business model, or funding; the stabilizing loan-quality channel is empirically important.
Nicola Pierri, Yannick Timmer. "Tech in Fin before FinTech: Blessing or Curse for Financial Stability?", IMF Working Paper No. 2020/014 (January 17, 2020).
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