FinTech penetration, charter value, and bank risk-taking

Xiaoran Jia

Journal of Banking & Finance, 2024, vol. 161, issue C

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.

Keywords: FinTech lending; Bank competition; Bank risk-taking; Financial stability; Community banks (search for similar items in EconPapers)
JEL-codes: D14 D53 G21 G23 G32 O31 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:161:y:2024:i:c:s0378426624000311

DOI: 10.1016/j.jbankfin.2024.107111

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