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The Anatomy of Banks’ IT Investments: Drivers and Implications

Author

Listed:
  • Kosha Modi
  • Mr. Nicola Pierri
  • Mr. Yannick Timmer
  • Mr. Maria Soledad Martinez Peria

Abstract

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.

Suggested Citation

  • Kosha Modi & Mr. Nicola Pierri & Mr. Yannick Timmer & Mr. Maria Soledad Martinez Peria, 2022. "The Anatomy of Banks’ IT Investments: Drivers and Implications," IMF Working Papers 2022/244, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2022/244
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    Keywords

    IT Adoption; Fintech Competition; Financial Inclusion; Monetary Policy; banks' IT investment; IT-savvy bank; tech spend; IT bank; Fintech; Mortgages; Loans; Income; Bank credit; Global;
    All these keywords.

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