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Friend or foe: The divergent effects of FinTech on financial stability

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  • Fung, Derrick W.H.
  • Lee, Wing Yan
  • Yeh, Jason J.H.
  • Yuen, Fei Lung

Abstract

Whether FinTech causes the fragility of financial institutions is a controversial issue. Using a panel sample of listed banks from 84 countries, we exploit the introduction of FinTech regulatory sandboxes as an exogenous shock and examine the heterogeneous effect of FinTech on the fragility of financial institutions. We find that (i) a shock to FinTech innovations has no net effect on the fragility of financial institutions when we ignore market characteristics, (ii) promoting FinTech decreases (increases) the fragility of financial institutions in emerging (developed) financial markets, and (iii) FinTech affects the fragility of financial institutions through the channel of profitability.

Suggested Citation

  • Fung, Derrick W.H. & Lee, Wing Yan & Yeh, Jason J.H. & Yuen, Fei Lung, 2020. "Friend or foe: The divergent effects of FinTech on financial stability," Emerging Markets Review, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:ememar:v:45:y:2020:i:c:s1566014120301072
    DOI: 10.1016/j.ememar.2020.100727
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    More about this item

    Keywords

    FinTech; Financial stability; Sandboxes; Emerging financial market; Developed financial market;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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