Investing in Lending Technology: IT Spending in Banking
68 Pages Posted: 6 Oct 2021 Last revised: 22 Aug 2022
There are 2 versions of this paper
Investing in Lending Technology: IT Spending in Banking
Investing in Lending Technology: IT Spending in Banking
Date Written: October 5, 2021
Abstract
This paper studies the economics behind the investment in information technologies
(IT) by U.S. commercial banks in the past decade. By linking banks’ IT spending to
their lending technologies, we analyze the distinctive natures of banks’ dealings with
information across various lending activities. Investment in communication IT is shown
to be associated more with improving banks’ ability of soft information production and
transmission, while investment in software IT helps enhance banks’ hard information
processing capacity. We exploit polices that affect geographic regions differentially to
show causally that banks respond to an increased demand for small business credit
(mortgage refinance) by increasing their spending on communication (software) IT
spending. We also find that the entry of fintech induces commercial banks to increase
their investment in IT—more so in the software IT category.
Keywords: Information Technology, Small Business Lending, Mortgage Refinance, Communication Equipment, Software, Hard and Soft Information
JEL Classification: G21, G51, J24, O32
Suggested Citation: Suggested Citation