Techno-economic Analysis of Digital Finance for Risk Management in Commercial Banks

Digital finance, supported by advanced technologies such as big data, artificial intelligence, cloud computing, and blockchain, is profoundly changing the financial industry and model and reshaping the financial landscape. The integration and development of digital finance technology with commercial banks has enhanced the technology level of commercial banks and improved their operation and management, thus weakening commercial banks’ risk-taking level. At the same time, the development of digital finance has also prompted commercial banks to use big data technology to establish a risk early warning system and improve their risk warning and prevention capabilities. In this paper, we construct a partial equilibrium model of commercial banks’ risk-taking behavior under the constraints of digital finance and deduce the transmission mechanism of “digital finance — management cost — bank risk-taking”. A fixed-effects model is built to empirically test 163 commercial banks in China from 2011 to 2018. The results show that: (1) digital finance significantly reduces the risk-taking level of commercial banks; (2) digital finance reduces the risk-taking level of commercial banks through the channels of the breadth of coverage, depth of use, degree of payment and settlement support services, degree of credit investigation support services, and degree of digital services; (3) the use of deep channels of digital finance has the most apparent effect on reducing the risk-taking level of commercial banks.