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FinTech penetration, charter value, and bank risk-taking

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  • Jia, Xiaoran

Abstract

Using a sample of U.S. community banks and FinTech loans data from LendingClub and Prosper, I find that banks’ future change in risk-taking is positively associated with their current exposure to FinTech penetration. Path analysis shows that FinTech penetration influences bank risk-taking through the erosion of bank charter value. Additionally, cross-sectional analysis shows that the risk-increasing effect of FinTech penetration is stronger for banks with lower ex-ante charter value and greater reliance on hard information. My results are robust to alternative measures of bank risk-taking and FinTech penetration, propensity score matching, and a battery of sensitivity and additional tests. Regarding policy implications, the findings imply that reasonable estimations of banks’ charter value may serve as an early indicator of banks’ future risk-taking incentives.

Suggested Citation

  • Jia, Xiaoran, 2024. "FinTech penetration, charter value, and bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 161(C).
    • Handle: RePEc:eee:jbfina:v:161:y:2024:i:c:s0378426624000311
    DOI: 10.1016/j.jbankfin.2024.107111
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    More about this item

    Keywords

    FinTech lending; Bank competition; Bank risk-taking; Financial stability; Community banks;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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