IMF Paper on Impact of Lender Fintech Adoption on Financial Stability
IMF published a working paper that analyzes the financial stability implications of information technology (IT) adoption by lenders. The study estimates bank-level intensity of IT adoption before the global financial crisis using a novel dataset that provides information on hardware used in U.S. commercial bank branches after mapping them to their parent bank. The evidence presented in the paper suggests that the “fintech era” is likely to be beneficial to financial stability, as adoption of technology by lenders has resulted in better borrower selection.
The study finds 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. However, loan-level analysis indicates that high-IT-adoption banks originated mortgages with better performance and did not offload low-quality loans. Loans originated by high-IT banks experienced lower delinquency rates during the crisis, even when they were securitized and sold to Freddie Mac. Therefore, the results indicate that IT adoption helped banks to select better borrowers and produce more resilient loans. Additionally, the study used the application of a simple text-analysis algorithm to the biographies of top executives and found that banks led by more “tech-oriented” managers adopted IT more intensively and experienced lower non-performing loans during the crisis. Thus, the results suggest that technology adoption in lending can enhance financial stability through the production of more resilient loans.
Related Link: Working Paper (PDF)
Keywords: International, Banking, Fintech, Credit Risk, NPLs, Financial Stability, IMF
Previous Article
GFIN Publishes Report on Lessons Learned from Cross-Border TestingRelated Articles
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
BoE Sets Out Plan to Transform Data Collection from Financial Sector
BoE has set out a three-phased plan to transform data collection from the UK financial sector over the next decade.
BIS Issues Updates on Technology Initiatives on Cross-Border Payments
BIS recently made a couple of announcements with respect to the planned and ongoing work in the area of financial technology.
ESRB Updates List of Macro-Prudential Measures in February 2021
ESRB updated the list of national macro-prudential measures applied by each member state in the European Economic Area.
BoE Survey Shows Positive COVID Impact on Outsourced Banking Services
BoE has set out results of a survey on the impact of COVID-19 events on the use of machine learning and data science.
ECB Issues Opinion on Proposal to Regulate Crypto-Asset Markets in EU
In response to a request from the European Council and Parliament, ECB published an opinion on the proposed regulation on markets in crypto-assets.
APRA Announces Aggregate Committed Liquidity Facility for Banks
APRA announced the updated aggregate amounts for the 2021 Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated authorized deposit-taking institutions that are subject to the Liquidity Coverage Ratio (LCR).
ECB and UK Authorities Agree on Post-Brexit Supervisory Cooperation
ECB published supervisory Memorandums of Understanding (MoUs) with UK as well as other European and non-European authorities.
EIOPA Outlines Strategic Supervisory Priorities for Insurance Sector
EIOPA identified business model sustainability and adequate product design as the two EU-wide strategic supervisory priorities.
US Agencies to Revise FFIEC 031, FFIEC 041, and FFIEC 051 Reports
After considering comments received on the November 2020 proposal, US Agencies (FDIC, FED and OCC) are proceeding with the proposed revisions to the reporting forms and instructions for Call Reports FFIEC 031, FFIEC 041, and FFIEC 051.
