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Stress Testing Banks’ Digital Capabilities: Evidence from the COVID-19 Pandemic

Published online by Cambridge University Press:  25 September 2023

Alan Kwan ,
Chen Lin Open the ORCID record for Chen Lin [Opens in a new window] ,
Vesa Pursiainen  and
Mingzhu Tai
Alan Kwan
Affiliation:
University of Hong Kong Faculty of Business and Economics [email protected]
Chen Lin*
Affiliation:
University of Hong Kong Faculty of Business and Economics
Vesa Pursiainen
Affiliation:
University of St.Gallen and Swiss Finance Institute [email protected]
Mingzhu Tai
Affiliation:
University of Hong Kong Faculty of Business and Economics [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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Banks’ information technology (IT) capabilities affect their ability to serve customers during the COVID-19 pandemic, which generates an unexpected and unprecedented shock that shifts banking services from in-person to digital. Amid mobility restrictions, banks with better IT experience larger reductions in physical branch visits and larger increases in website traffic, implying a larger shift to digital banking. Stronger IT banks are able to originate more Paycheck Protection Program loans to small business borrowers, especially in areas with more severe COVID-19 outbreaks, higher internet use, and higher bank competition. Those banks also attract more deposit flows and receive better mobile customer reviews during the pandemic.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 6 , September 2024 , pp. 2618 - 2646
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, Sumit Agarwal, Christoph Basten, Diana Bonfim, Martin Brown, Murillo Campello, Sebastian Doerr, Mara Faccio (the editor), Andreas Fuster, Tobin Hanspal, Christoph Herpfer, Yiping Huang, Andrew Karolyi, Xiang Li, Mrinal Mishra, Deniz Okat, Steven Ongena, Mikael Paaso, Yu Shan, David Solomon, and Yannick Timmer, as well as conference participants at the 2020 Shanghai-Edinburgh Fintech Conference, 2021 Columbia SIPA/BPI Bank Regulation Research Conference, 2021 CEBRA Annual Meeting, 2021 ADBI-ADB-CCAF Conference on “Fintech and COVID-19,” 2021 Biennial IADI Research Conference, 2021 IWH-FIN-FIRE Workshop on “Challenges to Financial Stability,” 2021 Swiss Winter Conference on Financial Intermediation, 2021 GdRE International Symposium on Money, Banking and Finance, and 2021 UZH Workshop on Sustainable Banking, as well as seminar participants at ACPR – Banque de France, Concordia University, WU Vienna University of Economics and Business, and Kyiv School of Economics for helpful comments. Kwan acknowledges support from the Research Grant Council of the Hong Kong SAR, China (Project #C7105-20G). Lin acknowledges the financial support from the National Natural Science Foundation of China (Project No. 72192841) and the Research Grant Council of the Hong Kong SAR, China (Project No. T35-710/20-R).

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