Tech-focused banks may have weathered the global economic crisis better than their less savvy rivals, suggests a new IMF paper that finds a link between higher IT adoption pre-2008 and fewer loan defaults when the crunch hit.
In a working paper, economists Nicola Pierri and Yannick Timmer used a data set on the ratio of PCs to staffers at US commercial bank branches ahead of the crash to determine "IT-adoption".Download the document now 734.9 kb (Chrome HTML Document)
They conclude 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.
The banks that did better were not less exposed in other ways, such as their geographical footprint, business models or funding sources. Instead, high IT adoption lenders appear to have simply originated mortgages with better performance.
"Therefore, our results indicate that IT-adoption helped banks to select better borrowers and produce more resilient loans," says the paper.
Meanwhile, IT adoption levels seem to be connected to the interests of the people at the top of banks. The authors used a text-analysis algorithm on the biographies of top executives to identify a link between how tech-orientated managers are and IT adoption and, therefore, the levels of non-performing loans during the crisis.
Finally, more than a decade on, in a vastly-changed digital world, Pierri an Timmer conclude by arguing that their findings suggest that the "'Fintech era' is likely to be beneficial to financial stability".
Read the full paper: