Financial technology impact on stability of financial institutions
Abstract
It is a controversial question whether financial technology makes financial institutions vulnerable (instable). This research is based on the analysis of financial institutions from 37 countries. Authors use regulatory sandboxes that are introduced in countries as an external FinTech shock to examine the impact of financial technology on financial institution stability. Some observations can be drawn: 1) if market characteristics are not considered, then there is no effect on the financial institution vulnerability linked to the shock of FinTech innovation; 2) development of FinTech in developed countries can reduce (or increase) the vulnerability (instability) of financial markets; 3) FinTech impacts the vulnerability (instability) of financial institutions through the profitability.
Nevertheless, these indicators do not consider the complex multidimensional essence of FinTech. This article summarises how FinTech and developed financial institutions and the financial sector are in terms of their depth, access, and efficiency. The article offers a valuable analytical means of developing FinTech impact on financial stability for researchers and policymakers.
Keyword : financial stability, FinTech, financial indicators, financial market, z-score
How to Cite
Stankevičienė, J., & Kabulova, J. (2022). Financial technology impact on stability of financial institutions. Technological and Economic Development of Economy, 28(4), 1089–1114. https://doi.org/10.3846/tede.2022.17093
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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International Monetary Fund. (2019). Financial soundness indicators compilation guide 2019. Statistics Dept., International Monetary Fund. https://doi.org/10.5089/9781484396209.069
Ivashenko, N. P., Jengovatova, A. A., Shahova, M. S., Antropov, M. S., Korostyleva, I. I., Popova, V. G., Savchenko, I. V., Bujanov, E. V., Fedorova, F. Sh., Krasnostanova, M. V., Gruzdeva, E. V., Tishhenko, E. B., Tishhenko, S. A., Zaharov, A. A., & Kolesnikov, A. N. (2016). Jekonomika innovacij. Jekonomicheskij fakul’tet MGU imeni M.V. Lomonosova, Moskva.
Köhler, M. (2015). Which banks are more risky? The impact of business models on bank stability. Journal of Financial Stability, 16, 195–212. https://doi.org/10.1016/j.jfs.2014.02.005
Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk-taking. Journal of Financial Economics, 93(2), 259–275. https://doi.org/10.1016/j.jfineco.2008.09.003
Monin, P. J. (2019). The OFR financial stress index. Risks, 7(1), 25. https://doi.org/10.3390/risks7010025
Moreno, I., Parrado-Martínez, P., & Trujillo-Ponce, A. (2021). Using the Z-score to analyse the financial soundness of insurance firms. European Journal of Management and Business Economics. https://doi.org/10.1108/EJMBE-09-2020-0261
Pollari, I., & Ruddenklau, A. (2021). Pulse of Fintech H2 2020 – Global insight. KPMG.
PwC. (2020). The sandbox approach. https://www.pwc.in/industries/financial-services/fintech/fintech-insights/the-sandbox-approach.html
Ruiz, P. I. A., & Weber, O. (2021). The impact of financial sector sustainability guidelines and regulations on the financial stability of South American banks. ACRN Journal of Finance and Risk Perspectives, 10(1), 111–127. https://doi.org/10.35944/jofrp.2021.10.1.007
Schäfer, T., & Utz, S. (2021). Values-based and global systemically important banks: Their stability and the impact of regulatory changes after the financial crisis on it. Asia-Pacific Financial Markets. https://doi.org/10.1007/s10690-021-09332-w
Schueffel, P. (2017). Taming the Beast: A scientific definition of Fintech. Journal of Innovation Management, 4(4), 32–54. https://doi.org/10.24840/2183-0606_004.004_0004
Stewart, R., & Chowdhury, M. (2021). Banking sector distress and economic growth resilience: Asymmetric effects. The Journal of Economic Asymmetries, 24, e00218. https://doi.org/10.1016/j.jeca.2021.e00218
Sviderskaya, M., & Miksyuk, A. (2012). Operezhaiushchie indikatory i prognozirovanie davleniia na valiutnom rinke Belarusi. Bank bulletin magazine: informatsionno-analiticheskiy i nauchno-prakticheskiy zhurnal, 31, 16–22.
Svirydzenka, K. (2016). Introducing a new broad-based index of financial development (IMF Working Papers, 16(05)). https://doi.org/10.5089/9781513583709.001
Toader, T., Onofrei, M., Popescu, A. I., & Andrieș, A. M. (2018). Corruption and banking stability: Evidence from emerging economies. Emerging Markets Finance and Trade, 54(3), 591–617. https://doi.org/10.1080/1540496X.2017.1411257
Uddin, A., Chowdhury, M. A. F., Sajib, S. D., & Masih, M. (2020). Revisiting the impact of institutional quality on post-GFC bank risk-taking: Evidence from emerging countries. Emerging Markets Review, 42, 100659. https://doi.org/10.1016/j.ememar.2019.100659
Vlasenko, M. (2013). Matematicheskaya model’ uslovnogo banka. Bank Bulletin Magazine: Information-Analytical And Scientific-Practical Magazine, 1, 20–25.
Zhao, J., Li, X., Yu, C. H., Chen, S., & Lee, C. C. (2022). Riding the FinTech innovation wave: FinTech, patents and bank performance. Journal of International Money and Finance, 122, 102552. https://doi.org/10.1016/j.jimonfin.2021.102552
Albulescu, C. T., Goyeau, D., & Pépin, D. (2013). Financial instability and ECB monetary policy. Economics Bulletin, 33(1), 388–400.
Arner, D. W., Barberis, J. N., & Buckley, R. P. (2015). The evolution of Fintech: A new post-crisis paradigm? SSRN. https://doi.org/10.2139/ssrn.2676553
Atkeson, A. G., D’Avernas, A., Eisfeldt, A. L., & Weill, P.-O. (2019). Government guarantees and the valuation of American Banks. NBER Macroeconomics Annual, 33, 81–145. https://doi.org/10.1086/700893
Bank for International Settlements. (2020). Innovation and FinTech. BIS.
Beck, T., De Jonghe, O., & Schepens, G. (2013). Bank competition and stability: Cross-country heterogeneity. Journal of Financial Intermediation, 22(2), 218–244. https://doi.org/10.1016/j.jfi.2012.07.001
Begenau, J. (2019). Comment. NBER Macroeconomics Annual, 33, 146–156. https://doi.org/10.1086/700900
Ceylan, I. E. (2021). The impact of firm-specific and macroeconomic factors on financial distress risk: A case study from Turkey. Universal Journal of Accounting and Finance, 9(3), 506–517. https://doi.org/10.13189/ujaf.2021.090325
Chiaramonte, L., Hong Liu, F., Poli, F., & Zhou, M. (2016). How accurately can Z-score predict bank failure? Financial Markets. Institution and Instruments, 25(5), 333–360. https://doi.org/10.1111/fmii.12077
Delle Monache, D., De Polis, A., & Petrella, I. (2021). Modelling and forecasting macroeconomic downside risk (Bank of Italy Temi Di Discussione Working Paper No. 1324). SSRN. https://doi.org/10.2139/ssrn.3852363
Eichler, S., Lähner, T., & Noth, F. (2018). Regional banking instability and FOMC voting. Journal of Banking & Finance, 87, 282–292. https://doi.org/10.1016/j.jbankfin.2017.10.011
Ernst & Young. (2017). EY FinTech Adoption Index 2017: The rapid emergence of FinTech.
Fang, Y., Hasan, I., & Marton, K. (2014). Institutional development and bank stability: Evidence from transition countries. Journal of Banking & Finance, 39, 160–176. https://doi.org/10.1016/j.jbankfin.2013.11.003
Fazio, D. M., Silva, T. C., Tabak, B. M., & Cajueiro, D. O. (2018). Inflation targeting and financial stability: Does the quality of institutions matter? Economic Modelling, 71, 1–15. https://doi.org/10.1016/j.econmod.2017.09.011
Financial Stability Board. (2017). Financial stability implications from FinTech: Supervisory and regulatory issues that merit authorities’ attention. http://www.fsb.org/wp-content/uploads/R270617.pdf
Financial Stability Board. (2019). FinTech and market structure in financial services: Market developments and potential financial stability implications. http://www.fsb.org/emailalert%0Ahttp://www.fsb.org/2019/02/fintech-and-market-structure-in-financial-services-market-developments-and-potential-financial-stability-implications/
Gadanecz, B., & Jayaram, K. (2009). Measures of financial stability – a review. In Proceedings of the IFC Conference on “Measuring financial innovation and its impact”, 26–27 August 2008, Basel (vol. 31, pp. 365–380). BIS.
Gersl, A., & Hermanek, J. (2007). Financial stability indicators: Advantages and disadvantages of their use in the assessment of financial system stability. In CNB financial stability report 2006 (pp. 69–79). Czech National Bank. http://ideas.repec.org/h/cnb/ocpubc/fsr06-2.html
Giglio, F. (2022). Fintech: A literature review. International Business Research, 15(1), 80–85. https://doi.org/10.5539/ibr.v15n1p80
Goetz, M. R. (2018). Competition and bank stability. Journal of Financial Intermediation, 35, 57–69. https://doi.org/10.1016/j.jfi.2017.06.001
Haddad, C., & Hornuf, L. (2019). The emergence of the global fintech market: Economic and technological determinants. Small Business Economics, 53, 81–105. https://doi.org/10.1007/s11187-018-9991-x
Haddad, C., & Hornuf, L. (2021). The impact of fintech startups on financial institutions’ performance and default risk (CESifo Working Paper No. 9050). SSRN. https://doi.org/10.2139/ssrn.3837778
Hodula, M. (2022). Does Fintech credit substitute for traditional credit? Evidence from 78 countries. Finance Research Lettersi, 46, 102469. https://doi.org/10.1016/j.frl.2021.102469
Hugonnier, J., & Morellec, E. (2017). Bank capital, liquid reserves, and insolvency risk. Journal of Financial Economics, 125(2), 266–285. https://doi.org/10.1016/j.jfineco.2017.05.006
International Monetary Fund. (2018). The Bali Fintech agenda: A blueprint for successfully harnessing Fintech’s opportunities. International Monetary Fund.
International Monetary Fund. (2019). Financial soundness indicators compilation guide 2019. Statistics Dept., International Monetary Fund. https://doi.org/10.5089/9781484396209.069
Ivashenko, N. P., Jengovatova, A. A., Shahova, M. S., Antropov, M. S., Korostyleva, I. I., Popova, V. G., Savchenko, I. V., Bujanov, E. V., Fedorova, F. Sh., Krasnostanova, M. V., Gruzdeva, E. V., Tishhenko, E. B., Tishhenko, S. A., Zaharov, A. A., & Kolesnikov, A. N. (2016). Jekonomika innovacij. Jekonomicheskij fakul’tet MGU imeni M.V. Lomonosova, Moskva.
Köhler, M. (2015). Which banks are more risky? The impact of business models on bank stability. Journal of Financial Stability, 16, 195–212. https://doi.org/10.1016/j.jfs.2014.02.005
Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk-taking. Journal of Financial Economics, 93(2), 259–275. https://doi.org/10.1016/j.jfineco.2008.09.003
Monin, P. J. (2019). The OFR financial stress index. Risks, 7(1), 25. https://doi.org/10.3390/risks7010025
Moreno, I., Parrado-Martínez, P., & Trujillo-Ponce, A. (2021). Using the Z-score to analyse the financial soundness of insurance firms. European Journal of Management and Business Economics. https://doi.org/10.1108/EJMBE-09-2020-0261
Pollari, I., & Ruddenklau, A. (2021). Pulse of Fintech H2 2020 – Global insight. KPMG.
PwC. (2020). The sandbox approach. https://www.pwc.in/industries/financial-services/fintech/fintech-insights/the-sandbox-approach.html
Ruiz, P. I. A., & Weber, O. (2021). The impact of financial sector sustainability guidelines and regulations on the financial stability of South American banks. ACRN Journal of Finance and Risk Perspectives, 10(1), 111–127. https://doi.org/10.35944/jofrp.2021.10.1.007
Schäfer, T., & Utz, S. (2021). Values-based and global systemically important banks: Their stability and the impact of regulatory changes after the financial crisis on it. Asia-Pacific Financial Markets. https://doi.org/10.1007/s10690-021-09332-w
Schueffel, P. (2017). Taming the Beast: A scientific definition of Fintech. Journal of Innovation Management, 4(4), 32–54. https://doi.org/10.24840/2183-0606_004.004_0004
Stewart, R., & Chowdhury, M. (2021). Banking sector distress and economic growth resilience: Asymmetric effects. The Journal of Economic Asymmetries, 24, e00218. https://doi.org/10.1016/j.jeca.2021.e00218
Sviderskaya, M., & Miksyuk, A. (2012). Operezhaiushchie indikatory i prognozirovanie davleniia na valiutnom rinke Belarusi. Bank bulletin magazine: informatsionno-analiticheskiy i nauchno-prakticheskiy zhurnal, 31, 16–22.
Svirydzenka, K. (2016). Introducing a new broad-based index of financial development (IMF Working Papers, 16(05)). https://doi.org/10.5089/9781513583709.001
Toader, T., Onofrei, M., Popescu, A. I., & Andrieș, A. M. (2018). Corruption and banking stability: Evidence from emerging economies. Emerging Markets Finance and Trade, 54(3), 591–617. https://doi.org/10.1080/1540496X.2017.1411257
Uddin, A., Chowdhury, M. A. F., Sajib, S. D., & Masih, M. (2020). Revisiting the impact of institutional quality on post-GFC bank risk-taking: Evidence from emerging countries. Emerging Markets Review, 42, 100659. https://doi.org/10.1016/j.ememar.2019.100659
Vlasenko, M. (2013). Matematicheskaya model’ uslovnogo banka. Bank Bulletin Magazine: Information-Analytical And Scientific-Practical Magazine, 1, 20–25.
Zhao, J., Li, X., Yu, C. H., Chen, S., & Lee, C. C. (2022). Riding the FinTech innovation wave: FinTech, patents and bank performance. Journal of International Money and Finance, 122, 102552. https://doi.org/10.1016/j.jimonfin.2021.102552