Does FinTech Increase Bank Risk-taking?

Selim Elekdag, Drilona Emrullahu and Sami Ben Naceur
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Drilona Emrullahu: Université catholique de Louvain, LIDAM/LFIN, Belgium

No 2025009, LIDAM Reprints LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: Motivated by its rapid growth, this paper investigates how FinTech activities influence risk-taking by financial intermediaries (FIs). In this context, the paper revisits an ongoing debate on the impact of competition on financial stability: on one side, it is argued that greater competition encourages greater risk-taking (competition-fragility hypothesis), while the other side asserts that more competition can increase financial stability (competition-stability hypothesis). Using a curated database covering over 10,000 FIs and global FinTech activities, we find a robust relationship whereby greater FinTech presence is associated with heightened risk-taking by FIs, offering support for the competition-fragility hypothesis. However, the inclusion of bank-, industry, and country-specific characteristics can alter this relationship. Importantly, there is suggestive evidence indicating that in certain cases, greater FinTech presence may be associated with less FI risk-taking amid stronger domestic institutions. Notwithstanding the relevance for policy, this paper presents a novel framework that may help reconcile some of the conflicting results in the literature, which have found supportive evidence for each of the two competing hypotheses.

Keywords: FinTech; bank risk-taking; competition (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 (search for similar items in EconPapers)
Pages: 29
Date: 2025-09-01
Note: In: Journal of Financial Stability, 2025, vol. 76, 101360
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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlr:2025009

DOI: 10.1016/j.jfs.2024.101360

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