Working Paper

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;

https://doi.org/10.17016/FEDS.2022.020

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2022-04-13

Number: 2022-020