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
EC Publishes Regulations Supplementing Investment Firms Directive
The European Commission (EC) published three Delegated Regulations (2021/2153, 2021/2154, and 2021/2155) to supplement the Investment Firms Directive (IFD or Directive 2019/2034).
FSB Report Examines Trends in Non-Bank Intermediation in Americas
The Financial Stability Board (FSB) published a report that presents results of the sixth non-bank financial intermediation monitoring exercise in the Americas.
BIS Discusses Regulatory Approach for Non-Bank Intermediation
The Bank for International Settlements (BIS) published the December issue of the Quarterly Review, which analyzes the non-bank financial intermediation mechanisms that could undermine financial stability.
BoE Calls for Vendor Input for Data Collection Transformation Program
The Bank of England (BoE) opened the Alternative Liquidity Facility, or ALF, for deposits from the participating UK-based Islamic banks for the first time.
APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
EBA Proposes Standards on Interest Rate Risk in the Banking Book
The European Banking Authority (EBA) launched three consultations on technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions, with the comment period ending on April 04, 2022.
EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
EBA Sets Out List of Banks for Mandatory Basel III Monitoring Exercise
The European Banking Authority (EBA) published the sample of banks for the mandatory Basel III monitoring exercise, which will refer to the December 2021 data.
FED Revises Complex Institution Liquidity Monitoring Report for Banks
The Board of Governors of the Federal Reserve System (FED) is adopting a proposal to revise and extend for three years the Complex Institution Liquidity Monitoring Report (FR 2052a) for banks.
FSB Sets Out Good Practices for Crisis Management Groups
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.
