The Anatomy of Banks’ IT Investments: Drivers and Implications

By Kosha Modi, Nicola Pierri, Yannick Timmer, Maria Soledad Martinez Peria

December 9, 2022

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Kosha Modi, Nicola Pierri, Yannick Timmer, and Maria Soledad Martinez Peria. The Anatomy of Banks’ IT Investments: Drivers and Implications, (USA: International Monetary Fund, 2022) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper relies on administrative data to study determinants and implications of US banks’ Information Technology (IT) investments, which have increased six-fold over two decades. Large and small banks had similar IT expenses a decade ago. Since then, large banks sharply increased their spending, especially those which were more exposed to competition from fintech lenders. Other local-level and bank-level factors, such as county income and bank income sources, also contribute to explain the heterogeneity in IT investments. Analysis of the mortgage market reveals that fintechs’ lending behavior is more similar to that of non-bank financial intermediaries rather than IT-savvy banks, suggesting that factors other than technology are responsible for the differences between banks and other lenders. However, both IT-savvy banks and fintech lend to lower income borrowers, pointing towards benefits for financial inclusion from higher IT adoption. Banks’ IT investments are also shown to matter for the responsiveness of bank lending to monetary policy.

Subject: Bank credit, Financial institutions, Fintech, Income, Loans, Money, Mortgages, National accounts, Technology

Keywords: Bank credit, Banks' IT investment, Financial Inclusion, Fintech, Fintech Competition, Global, Income, IT Adoption, IT bank, IT-savvy bank, Loans, Monetary Policy, Mortgages, Tech spend

Publication Details

Pages:

65
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/244
Stock No:

WPIEA2022244
ISBN:

9798400226076
ISSN:

1018-5941

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