The importance of technology in banking during a crisis.

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Date: May 2022
Publisher: Elsevier B.V.
Document Type: Report
Length: 462 words

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Abstract :

Keywords Technology; Financial stability; IT Adoption; Non-performing loans; Screening Highlights * Banks' Information Technology (IT) adoption increases their resilience during a crisis. * IT adoption improves screening of borrowers. * Banks led by more tech-prone executives adopted more IT before the global financial crisis and performed better during the crisis. Abstract What are the implications of information technology (IT) in banking for financial stability? Data on US banks' IT equipment and the background of their executives reveals that higher pre-crisis IT adoption led to fewer non-performing loans and more lending during the global financial crisis. Empirical evidence indicates a direct role of IT adoption in strengthening bank resilience; this includes instrumental variable estimates exploiting the historical location of technical schools. Loan-level analysis shows that high-IT banks originated mortgages with better performance, indicating better borrower screening. No evidence points to offloading of low-quality loans, differences in business models, or enhanced monitoring. Author Affiliation: (a) International Monetary Fund. 1900 Pennsylvania Avenue NW, Washington DC, USA (b) Federal Reserve Board, United States * Corresponding author. Article History: Received 6 August 2021; Revised 30 March 2022; Accepted 4 April 2022 (footnote)[white star] This paper is a revised version of the IMF WP 20/14 with title "Tech in Fin before FinTech: Blessing or Curse for Financial Stability?". We are grateful to Urban Jermann (editor), Joseph Vavra (the associated editor), and an anynomous referee for invaluable feedback that significantly improved the paper during the revision process. We thank Tobias Adrian, Andrea Ajello, David Aikman (discussant), Ufuk Akcigit, Tobias Berg, Barbara Biasi, Markus Brunnermeier, Hans Degryse (discussant), Giovanni Dell'Ariccia, Enrica Detragiache, Douglas Diamond, Ehsan Ebrahimy, Andreas Fuster (discussant), Ann Harrison, Peter Hoffmann, Deniz Igan, Divya Kirti, Simone Lenzu, Davide Malacrino, Atif Mian, Sole Martinez Peria, Cyril Pouvelle (discussant), Andrea Presbitero, Damien Puy, Lev Ratnovski, Gustavo Suarez, Suchanan Tambunlertchai, James Vickery (discussant), Gregor Weiss, Torsten Wezel, Brian Wolfe (discussant), and seminar and conference participants at Third Bergen FinTech conference 2020, EBA Policy Research Workshop, BIS/BoE/CEPR Conference on Financial Innovation: Implications for Competition, Regulation and Monetary Policy, EFA, IWH-FIN-FIRE Workshop on Challenges to Financial Stability, CAFR Workshop on Fintech, Cass Business School, ECB, Fed, IMF, Villanova University, and RESMF annual conference for their insightful comments. Nicola Pierri is grateful to Nick Bloom for guidance and support during the early stages of the project. We thank Chenxu Fu, Hala Moussawi, and Huy Nguyen for excellent research assistance and Gladys Cheng and Sylvie Poirot for help with data sources. All remaining errors are our sole responsibility. The views expressed in the paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or its Management nor of the Federal Reserve Board or the Federal Reserve System. Byline: Nicola Pierri [npierri@imf.org] (*,a), Yannick Timmer [yannick.timmer@frb.gov] (b)

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Gale Document Number: GALE|A703193417