The Importance of Technology in Banking during a 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.
Keywords: Technology; Financial Stability; IT Adoption; Non-Performing Loans; Screening;
JEL Classification: D82; D83; E44; G14; G21; O30;
File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2022020pap.pdf
Provider: Board of Governors of the Federal Reserve System (U.S.)
Part of Series: Finance and Economics Discussion Series
Publication Date: 2022-04-13