Stress Testing Banks’ Digital Capabilities: Evidence from the COVID-19 Pandemic

Alan Kwan, Chen Lin, Vesa Pursiainen and Mingzhu Tai

Journal of Financial and Quantitative Analysis, 2024, vol. 59, issue 6, 2618-2646

Abstract: Banks’ information technology (IT) capabilities affect their ability to serve customers during the COVID-19 pandemic, which generates an unexpected and unprecedented shock that shifts banking services from in-person to digital. Amid mobility restrictions, banks with better IT experience larger reductions in physical branch visits and larger increases in website traffic, implying a larger shift to digital banking. Stronger IT banks are able to originate more Paycheck Protection Program loans to small business borrowers, especially in areas with more severe COVID-19 outbreaks, higher internet use, and higher bank competition. Those banks also attract more deposit flows and receive better mobile customer reviews during the pandemic.

Date: 2024
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