Does FinTech Increase Bank Risk Taking?

By Selim A Elekdag, Drilona Emrullahu, Sami Ben Naceur

January 26, 2024

Preview Citation

Format: Chicago

Selim A Elekdag, Drilona Emrullahu, and Sami Ben Naceur. Does FinTech Increase Bank Risk Taking?, (USA: International Monetary Fund, 2024) accessed November 13, 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

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.

Subject: Commercial banks, Competition, Cooperative banks, Financial institutions, Financial markets, Financial statements, Fintech, Public financial management (PFM), Technology

Keywords: Bank risk taking, Commercial banks, Competition, Competition-fragility hypothesis, Competition-stability hypothesis, Cooperative banks, FI risk, Financial statements, Fintech, FinTech activity, Global, Market power

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/017
Stock No:

WPIEA2024017
ISBN:

9798400265167
ISSN:

1018-5941

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