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Bank fintech, liquidity creation, and risk-taking: Evidence from China

Author

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  • Fang, Yi
  • Wang, Qi
  • Wang, Fan
  • Zhao, Yang

Abstract

The impact of fintech on banking industry has garnered significant academic attention. While existing research has primarily focused on the influence of fintech on bank performance, little attention has been paid to its impact on liquidity creation. This study examines the relationship between fintech and bank liquidity creation and risk-taking using bank-level data for Chinese listed banks from 2007 to 2021. Using text analysis, we develop a novel fintech index to measure the fintech development. Results show that fintech development significantly increases bank liquidity creation. This effect is particularly pronounced for banks with larger size, higher ownership concentration, and greater market power. The impact of fintech on liquidity creation primarily stems from changes in banks' credit structure. Additionally, fintech stimulates bank risk-taking through the liquidity creation channel, highlighting the need for rigorous risk management. This study provides practitioners and regulators with new insights into the impact of fintech on banking.

Suggested Citation

  • Fang, Yi & Wang, Qi & Wang, Fan & Zhao, Yang, 2023. "Bank fintech, liquidity creation, and risk-taking: Evidence from China," Economic Modelling, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:ecmode:v:127:y:2023:i:c:s0264999323002572
    DOI: 10.1016/j.econmod.2023.106445
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    More about this item

    Keywords

    Fintech; Bank liquidity creation; Bank risk-taking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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