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Does FinTech Increase Bank Risk Taking?

Author: Mr. Selim A Elekdag

Publisher: International Monetary Fund

Published: 2024-01-26

Total Pages: 46

ISBN-13:

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Motivated by its rapid growth, this paper investigates how FinTech activities influence risk taking by financial intermediaries (FIs). In this context, this paper revisits an ongoing debate on the impact of competition on financial stability: on one side, it is argued that greater competition encourages greater risk taking (competition-fragility hypothesis), while the other side of the debate asserts that more competition can increase financial stability (competition-stability hypothesis). Using a curated databased covering over 10,000 FIs and global FinTech activities, we find a robust relationship whereby greater FinTech presence is associated with heightened risk taking by FIs, offering support for the competition-fragility hypothesis. However, the inclusion of bank-, industry-, and country-specific characteristics can alter this relationship. Importantly, there is suggestive evidence indicating that in certain cases, greater FinTech presence may be associated with less FI risk taking amid stronger domestic institutions. Notwithstanding the relevance for policy, this paper presents a novel framework that may help reconcile some of the conflicting results in the literature which have found supportive evidence for each of the two competing hypotheses.

Book Synopsis Does FinTech Increase Bank Risk Taking? by : Mr. Selim A Elekdag

Download or read book Does FinTech Increase Bank Risk Taking? written by Mr. Selim A Elekdag and published by International Monetary Fund. This book was released on 2024-01-26 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Motivated by its rapid growth, this paper investigates how FinTech activities influence risk taking by financial intermediaries (FIs). In this context, this paper revisits an ongoing debate on the impact of competition on financial stability: on one side, it is argued that greater competition encourages greater risk taking (competition-fragility hypothesis), while the other side of the debate asserts that more competition can increase financial stability (competition-stability hypothesis). Using a curated databased covering over 10,000 FIs and global FinTech activities, we find a robust relationship whereby greater FinTech presence is associated with heightened risk taking by FIs, offering support for the competition-fragility hypothesis. However, the inclusion of bank-, industry-, and country-specific characteristics can alter this relationship. Importantly, there is suggestive evidence indicating that in certain cases, greater FinTech presence may be associated with less FI risk taking amid stronger domestic institutions. Notwithstanding the relevance for policy, this paper presents a novel framework that may help reconcile some of the conflicting results in the literature which have found supportive evidence for each of the two competing hypotheses.

The Effect of FinTech Development on Bank Risktaking

Author: Rogers Ondiba Ochenge

Publisher:

Published: 2023

Total Pages: 0

ISBN-13:

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Cognizant of the recent revolution in financial technology (FinTech), this paper explores the effect of FinTech development on bank risk-taking behavior in Kenya over the period 2008 to 2021. The study first develops a FinTech index using text mining technology and then relates this index to bank-risk taking in a dynamic panel regression model. The study uncovers the following empirical results: (i) The impact of FinTech on bank's risktaking shows a "U" shape, first falling bank risk and then rising. That is, at early stage of development, FinTech reduces risk-taking, but as key technologies mature and FinTech companies directly compete with traditional commercial banks, FinTech exacerbates risktaking. (ii) The impact of FinTech is heterogeneous across bank sizes. Specifically, large banks appear to be more sensitive to changes in FinTech development compared to small and medium-sized banks.

Book Synopsis The Effect of FinTech Development on Bank Risktaking by : Rogers Ondiba Ochenge

Download or read book The Effect of FinTech Development on Bank Risktaking written by Rogers Ondiba Ochenge and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Cognizant of the recent revolution in financial technology (FinTech), this paper explores the effect of FinTech development on bank risk-taking behavior in Kenya over the period 2008 to 2021. The study first develops a FinTech index using text mining technology and then relates this index to bank-risk taking in a dynamic panel regression model. The study uncovers the following empirical results: (i) The impact of FinTech on bank's risktaking shows a "U" shape, first falling bank risk and then rising. That is, at early stage of development, FinTech reduces risk-taking, but as key technologies mature and FinTech companies directly compete with traditional commercial banks, FinTech exacerbates risktaking. (ii) The impact of FinTech is heterogeneous across bank sizes. Specifically, large banks appear to be more sensitive to changes in FinTech development compared to small and medium-sized banks.

Powering the Digital Economy: Opportunities and Risks of Artificial Intelligence in Finance

Author: El Bachir Boukherouaa

Publisher: International Monetary Fund

Published: 2021-10-22

Total Pages: 35

ISBN-13: 1589063953

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This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies. The paper advances the discussion on the impact of this technology by distilling and categorizing the unique risks that it could pose to the integrity and stability of the financial system, policy challenges, and potential regulatory approaches. The evolving nature of this technology and its application in finance means that the full extent of its strengths and weaknesses is yet to be fully understood. Given the risk of unexpected pitfalls, countries will need to strengthen prudential oversight.

Book Synopsis Powering the Digital Economy: Opportunities and Risks of Artificial Intelligence in Finance by : El Bachir Boukherouaa

Download or read book Powering the Digital Economy: Opportunities and Risks of Artificial Intelligence in Finance written by El Bachir Boukherouaa and published by International Monetary Fund. This book was released on 2021-10-22 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies. The paper advances the discussion on the impact of this technology by distilling and categorizing the unique risks that it could pose to the integrity and stability of the financial system, policy challenges, and potential regulatory approaches. The evolving nature of this technology and its application in finance means that the full extent of its strengths and weaknesses is yet to be fully understood. Given the risk of unexpected pitfalls, countries will need to strengthen prudential oversight.

The Effects of FinTechs on Bank Market Power and Risk Taking Behaviour in Kenya

Author: David Ndwiga

Publisher:

Published: 2020

Total Pages:

ISBN-13:

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The study seeks to investigate the nexus between market power and stability of the banking industry in pre FinTech period (2003 - 2009) and post FinTech entrance period (2010 - 2017). Specifically, the study seeks to investigate the effect of FinTech entrance on market power and later analyze the effect of market power changes on banking industry's risk appetite. Market power was measured by Lerner index while risk appetite was measured by net interest margin and credit risk. The estimation results from PVAR model finds that bank risk-taking behaviour is positively - related to increase in the market power following the FinTechs' entry.

Book Synopsis The Effects of FinTechs on Bank Market Power and Risk Taking Behaviour in Kenya by : David Ndwiga

Download or read book The Effects of FinTechs on Bank Market Power and Risk Taking Behaviour in Kenya written by David Ndwiga and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The study seeks to investigate the nexus between market power and stability of the banking industry in pre FinTech period (2003 - 2009) and post FinTech entrance period (2010 - 2017). Specifically, the study seeks to investigate the effect of FinTech entrance on market power and later analyze the effect of market power changes on banking industry's risk appetite. Market power was measured by Lerner index while risk appetite was measured by net interest margin and credit risk. The estimation results from PVAR model finds that bank risk-taking behaviour is positively - related to increase in the market power following the FinTechs' entry.

FinTech in Sub-Saharan African Countries

Author: Mr.Amadou N Sy

Publisher: International Monetary Fund

Published: 2019-02-14

Total Pages: 61

ISBN-13: 1484385667

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FinTech is a major force shaping the structure of the financial industry in sub-Saharan Africa. New technologies are being developed and implemented in sub-Saharan Africa with the potential to change the competitive landscape in the financial industry. While it raises concerns on the emergence of vulnerabilities, FinTech challenges traditional structures and creates efficiency gains by opening up the financial services value chain. Today, FinTech is emerging as a technological enabler in the region, improving financial inclusion and serving as a catalyst for the emergence of innovations in other sectors, such as agriculture and infrastructure.

Book Synopsis FinTech in Sub-Saharan African Countries by : Mr.Amadou N Sy

Download or read book FinTech in Sub-Saharan African Countries written by Mr.Amadou N Sy and published by International Monetary Fund. This book was released on 2019-02-14 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: FinTech is a major force shaping the structure of the financial industry in sub-Saharan Africa. New technologies are being developed and implemented in sub-Saharan Africa with the potential to change the competitive landscape in the financial industry. While it raises concerns on the emergence of vulnerabilities, FinTech challenges traditional structures and creates efficiency gains by opening up the financial services value chain. Today, FinTech is emerging as a technological enabler in the region, improving financial inclusion and serving as a catalyst for the emergence of innovations in other sectors, such as agriculture and infrastructure.

The Fintech Disruption

Author: Thomas Walker

Publisher: Springer Nature

Published: 2023-02-24

Total Pages: 395

ISBN-13: 3031230698

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This book provides both practice-oriented and academic insights into the disruptive power of fintech for the banking industry. It explores (1) whether and how the banking industry can use newly emerging technologies in the financial sphere to its advantage while managing any associated risks, (2) how these technologies affect traditional banking service formats as well as the pricing of these services, and (3) whether the emergence of fintech in the banking industry calls for a rethinking of existing banking regulations such as the Basel Accords as well as country-specific regulations. Prior publications in this area typically examine both current applications of fintech in the banking industry, as well as its future prospects, by analyzing actual cases or exploring the impact of a single emerging technology on the banking industry. They often ignore the interdependence between emerging technologies and overlook the connection between fintech as a whole and the future of the banking industry. This book addresses this gap by providing a comprehensive overview of various fintech applications and by analyzing what they mean for the future of banking. Given the potentially disruptive power of fintech, the book will focus on the challenges banking supervisors are likely to encounter as a result of fintech’s continual ascent. It will thus encourage readers to think about and explore how to find a balance between the beneficial aspects of fintech and the challenges it creates in terms of supervision, regulation, and risk management.

Book Synopsis The Fintech Disruption by : Thomas Walker

Download or read book The Fintech Disruption written by Thomas Walker and published by Springer Nature. This book was released on 2023-02-24 with total page 395 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides both practice-oriented and academic insights into the disruptive power of fintech for the banking industry. It explores (1) whether and how the banking industry can use newly emerging technologies in the financial sphere to its advantage while managing any associated risks, (2) how these technologies affect traditional banking service formats as well as the pricing of these services, and (3) whether the emergence of fintech in the banking industry calls for a rethinking of existing banking regulations such as the Basel Accords as well as country-specific regulations. Prior publications in this area typically examine both current applications of fintech in the banking industry, as well as its future prospects, by analyzing actual cases or exploring the impact of a single emerging technology on the banking industry. They often ignore the interdependence between emerging technologies and overlook the connection between fintech as a whole and the future of the banking industry. This book addresses this gap by providing a comprehensive overview of various fintech applications and by analyzing what they mean for the future of banking. Given the potentially disruptive power of fintech, the book will focus on the challenges banking supervisors are likely to encounter as a result of fintech’s continual ascent. It will thus encourage readers to think about and explore how to find a balance between the beneficial aspects of fintech and the challenges it creates in terms of supervision, regulation, and risk management.

The Promise of Fintech

Author: Ms.Ratna Sahay

Publisher: International Monetary Fund

Published: 2020-07-01

Total Pages: 83

ISBN-13: 1513512242

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Technology is changing the landscape of the financial sector, increasing access to financial services in profound ways. These changes have been in motion for several years, affecting nearly all countries in the world. During the COVID-19 pandemic, technology has created new opportunities for digital financial services to accelerate and enhance financial inclusion, amid social distancing and containment measures. At the same time, the risks emerging prior to COVID-19, as digital financial services developed, are becoming even more relevant.

Book Synopsis The Promise of Fintech by : Ms.Ratna Sahay

Download or read book The Promise of Fintech written by Ms.Ratna Sahay and published by International Monetary Fund. This book was released on 2020-07-01 with total page 83 pages. Available in PDF, EPUB and Kindle. Book excerpt: Technology is changing the landscape of the financial sector, increasing access to financial services in profound ways. These changes have been in motion for several years, affecting nearly all countries in the world. During the COVID-19 pandemic, technology has created new opportunities for digital financial services to accelerate and enhance financial inclusion, amid social distancing and containment measures. At the same time, the risks emerging prior to COVID-19, as digital financial services developed, are becoming even more relevant.

Fintech, Inclusive Growth and Cyber Risks: Focus on the MENAP and CCA Regions

Author: Ms.Inutu Lukonga

Publisher: International Monetary Fund

Published: 2018-09-11

Total Pages: 51

ISBN-13: 1484376544

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Financial technology (fintech) is emerging as an innovative way to achieve financial inclusion and the broader objective of inclusive growth. Thus far, fintech in the MENAP and CCA remains below potential with limited impact on financial inclusion. This paper reviews the fintech landscape in the MENAP and CCA regions, identifies the constraints to the growth of fintech and its contribution to inclusive growth and considers policy options to unlock the potential.

Book Synopsis Fintech, Inclusive Growth and Cyber Risks: Focus on the MENAP and CCA Regions by : Ms.Inutu Lukonga

Download or read book Fintech, Inclusive Growth and Cyber Risks: Focus on the MENAP and CCA Regions written by Ms.Inutu Lukonga and published by International Monetary Fund. This book was released on 2018-09-11 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial technology (fintech) is emerging as an innovative way to achieve financial inclusion and the broader objective of inclusive growth. Thus far, fintech in the MENAP and CCA remains below potential with limited impact on financial inclusion. This paper reviews the fintech landscape in the MENAP and CCA regions, identifies the constraints to the growth of fintech and its contribution to inclusive growth and considers policy options to unlock the potential.

Reaching Out

Author:

Publisher: World Bank Publications

Published: 2005

Total Pages: 52

ISBN-13:

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"The authors (1) present new indicators of banking sector penetration across 99 countries based on a survey of bank regulatory authorities, (2) show that these indicators predict household and firm use of banking services, (3) explore the association between the outreach indicators and measures of financial, institutional, and infrastructure development across countries, and (4) relate these banking outreach indicators to measures of firms' financing constraints. In particular, they find that greater outreach is correlated with standard measures of financial development, as well as with economic activity. Controlling for these factors, the authors find that better communication and transport infrastructure and better governance are also associated with greater outreach. Government ownership of financial institutions translates into lower access, while more concentrated banking systems are associated with greater outreach. Finally, firms in countries with higher branch and ATM penetration and higher use of loan services report lower financing obstacles, thus linking banking sector outreach to the alleviation of firms' financing constraints. "--World Bank web site.

Book Synopsis Reaching Out by :

Download or read book Reaching Out written by and published by World Bank Publications. This book was released on 2005 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The authors (1) present new indicators of banking sector penetration across 99 countries based on a survey of bank regulatory authorities, (2) show that these indicators predict household and firm use of banking services, (3) explore the association between the outreach indicators and measures of financial, institutional, and infrastructure development across countries, and (4) relate these banking outreach indicators to measures of firms' financing constraints. In particular, they find that greater outreach is correlated with standard measures of financial development, as well as with economic activity. Controlling for these factors, the authors find that better communication and transport infrastructure and better governance are also associated with greater outreach. Government ownership of financial institutions translates into lower access, while more concentrated banking systems are associated with greater outreach. Finally, firms in countries with higher branch and ATM penetration and higher use of loan services report lower financing obstacles, thus linking banking sector outreach to the alleviation of firms' financing constraints. "--World Bank web site.

Bank Leverage and Monetary Policy's Risk-Taking Channel

Author: Mr.Giovanni Dell'Ariccia

Publisher: International Monetary Fund

Published: 2013-06-06

Total Pages: 41

ISBN-13: 1484381130

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We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.

Book Synopsis Bank Leverage and Monetary Policy's Risk-Taking Channel by : Mr.Giovanni Dell'Ariccia

Download or read book Bank Leverage and Monetary Policy's Risk-Taking Channel written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 2013-06-06 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.