April 2022

The Importance of Technology in Banking during a Crisis

Nicola Pierri and Yannick Timmer

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.

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

PDF: Full Paper

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Last Update: April 13, 2022