FinTech adoption in banks and their liquidity creation

Abstract

Utilizing an innovative financial technology (FinTech) index based on media sources, we analyse the effects of FinTech adoption on bank liquidity creation for a sample of the top 300 United States banks from Q1 2015 to Q2 2021. Our findings reveal a consistent negative association between FinTech adoption and bank liquidity creation, even during the coronavirus disease (COVID-19) pandemic. This relationship remains robust after conducting multiple rigorous tests including propensity score matching and difference-in-differences tests to address endogeneity problems. Overall, these results underscore the transformative influence of FinTech on fundamental liquidity creation function within traditional banking.

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