\n<\/p>\n
HONG \u00a0<\/p>\n The stability of financial institutions usually refers to \u00a0<\/p>\n On the downside, Fintech could amplify volatility in \u00a0<\/p>\n For example, China’s P2P lending industry, once the world’s \u00a0<\/p>\n More recently, two of China’s homegrown fintech champions, \u00a0<\/p>\n Ying “Where there is light there must also be shadow,” \u00a0<\/p>\n Titled Friend \u00a0<\/p>\n To examine the impact of the rise of FinTech on the \u00a0<\/p>\n The team sampled all listed banks worldwide that were active \u00a0<\/p>\n They found that the positive and negative effects of these \u00a0<\/p>\n Boosting Looking at specific market characteristics, the study also On the other hand, the launch of financial sandboxes in \u00a0<\/p>\n Moreover, Prof. Yeh says that FinTech can also improve the \u00a0<\/p>\n But why does FinTech enhance the profitability of financial \u00a0<\/p>\n “FinTech is disruptive but it is also a force for emancipation. \u00a0<\/p>\n Policy As the FinTech industry continues to grow, policy makers and \u00a0<\/p>\n For developed financial markets, the researchers advise \u00a0<\/p>\n “Regulators should give up on the idea of a \u00a0<\/p>\n Reference:<\/b><\/p>\n Derrick \u00a0<\/p>\n This
\nKONG SAR –\u00a0Media OutReach<\/a>\u00a0–\u00a06 May 2021 – The rapid
\ndevelopment of financial technology, also known as FinTech, in recent years has
\ntransformed how people use financial services. On the one hand, the increasing
\nuse of automation in banking services has brought with it greater convenience
\nfor consumers. On the flip side, the advent of new technological developments
\nsuch as cryptocurrency, high frequency and algorithmic trading, the rise of the
\ndigital wallet or peer-to-peer (P2P) lending, are all examples of FinTech that
\nhave brought new challenges to traditional financial service providers to some
\nextent. Given the disruptive influence of FinTech, it was only natural that a
\ngroup of researchers sought to closely examine its effects on the stability of
\ntraditional financial institutions. What they found was that the result very
\nmuch depended on the market.<\/p>\n
\nthe ability of these institutions, such as banks, brokerage firms or credit
\nunions, in performing their roles in financial transactions or other
\nintermediation functions without assistance from external forces such as the
\ngovernment. The promise behind FinTech is that it would help financial
\ninstitutions to enhance transparency, efficiency and make its services more
\nconvenient for users. For example, mobile banking has allowed consumers to
\nconduct their daily financial activities, such as transferring funds or paying
\nbills, without the need to talk to a teller or visit a bank branch.<\/p>\n
\nfinancial markets and make the financial system more vulnerable. For instance,
\nthe speed and ease of moving cash between banks in response to financial market
\nperformance enabled by FinTech can increase volatility. The heavy reliance on
\nthird-party service providers for the FinTech activities could also pose a
\nsystemic risk to financial institutions. Finally, online lending platforms
\noften fail to conduct effective credit checks on borrowers, which can lead to
\nhigher default risk.<\/p>\n
\nbiggest, has completely collapsed in just a few years. Many Chinese P2P lending
\nplatforms were plagued by fraud, defaults and even alleged Ponzi schemes, which
\neventually led to a government crackdown. The Deputy Governor at The People’s
\nBank of China Chen
\nYulu<\/a> announced in January that it had eliminated all P2P lending
\nplatforms in the country, however more than 800 billion Chinese yuan in debt is
\nstill left unpaid, state media Xinhua
\nNews<\/a> reported.<\/p>\n
\nAnt Group and Tencent, are coming under intense regulatory scrutiny by domestic
\nregulators over business models that some worry will lead to a dangerous
\naccumulation of systemic financial risk.<\/p>\n
\nVersus Yang<\/b><\/p>\n
\nsays Jason
\nYeh<\/a>, Associate Professor in the Department of Finance at The
\nChinese University of Hong Kong (CUHK) Business School, and one of the authors
\nof a new study. “Given the disruptive nature of technology, the rise of
\nFinTech is bound to have an impact on traditional financial institutions. So
\nit’s kind of fitting that we find that the bright and dark sides of FinTech
\nseem to offset each other and the promotion of FinTech doesn’t necessarily make
\nfinancial institutions more vulnerable.”<\/p>\n
\nor Foe: The Divergent Effects of FinTech on Financial Stability<\/a>,
\nthe study was co-conducted by Prof. Yeh with Profs. Derrick Fung, Wing Yan Lee
\nand Fei Lung Yuen at The Hang Seng University of Hong Kong.<\/p>\n
\nstability of financial institutions, the researchers looked at the introduction
\nof FinTech regulatory sandboxes. A FinTech regulatory sandbox is a way for a
\nfinancial regulator to allow companies to try out new business models, products
\nor services (under a controlled and supervised environment) that are not
\ncovered or permitted by existing legislation. The first such sandbox was
\nintroduced in the U.K. in 2016. Since then, 73 similar initiatives have been
\nset up in 57 countries around the world, according to the World
\nBank<\/a>.<\/p>\n
\non the Thomson Reuters Datastream platform between 2010 and 2017. Their final
\nsample included 1,375 banks from 84 countries. Using a common measurement of
\nbank stability, the research team found that the introduction of sandboxes did
\nnot have a statistically significant impact on the financial stability of the
\ninstitutions in the same jurisdiction.<\/p>\n
\nFinTech sandboxes on financial stability tended to offset each other after
\ndiscounting for the characteristics of individual firms or markets, or
\nmacroeconomic and other bank-specific factors. In general, they also found that
\nFinTech increases the stability of financial institutions in emerging financial
\nmarkets and decreases it in developed financial markets.<\/p>\n
\nStability and Profits<\/b><\/p>\n
\nfound that the promotion of FinTech through the setting up of regulatory
\nfinancial sandboxes can at the very least enhance the stability of financial
\ninstitutions if the market has low financial inclusion, with<\/p>\n\n
\n11.7 per 100,000 adults;<\/li>\n
\nof less than 1.6 percent;<\/li>\n
\nmargin of less than 2.4 percent, or<\/li>\n
\nratio of less than 44.2 percent.<\/li>\n<\/ul>\n
\nmarkets with high financial inclusion can undermine financial stability, the
\nstudy found.<\/p>\n
\nstability of financial institutions by boosting profitability. According to the
\nstudy, when a country has fewer bank branches than 11.4 branches per 100,000
\npeople, a central bank assets to GDP ratio of less than 1.7 percent, bank net
\ninterest margin of less than 2.2 percent, or a provisions to nonperforming
\nloans ratio of less than 45.6 percent, promoting FinTech by setting up
\nregulatory sandboxes can increase the profitability of financial institutions.<\/p>\n
\ninstitutions in emerging financial markets? The authors speculated this may be
\ndue to three reasons. First of all, FinTech has been widely adopted in emerging
\nfinancial markets and has greatly increased the profitability of the banks that
\ninvested in these FinTech start-ups. Second, the operational efficiency of the
\nbanks in emerging financial markets improved as a result of collaboration with
\ntechnology companies. Third, the products provided by FinTech companies are
\noften complementary to the existing services provided by banks. These banks
\ngain more customers as a result, and the complementary effect is greater in
\nemerging financial markets.<\/p>\n
\nNot only has it democratised the access to financial services for the masses in
\nemerging markets, but it also plays a pivotal role on the road to greater
\nfinancial inclusion,” Prof. Yeh says.<\/p>\n
\nImplications<\/b><\/p>\n
\nfinancial institutions are seeking ways to reap the benefits of technology
\nfurther. Prof. Yeh and his co-authors think that their research findings can
\nhelp policy makers and regulators to better utilise FinTech in different markets.<\/p>\n
\nregulators to focus on implementing measures that can address the instability
\ncaused by FinTech. In contrast, regulators in emerging financial markets should
\nconsider designing specific measures to promote FinTech innovations.<\/p>\n
\none-size-fits-all regulation for FinTech,” Prof. Yeh comments. “What
\nthey need is to come up with a tailor-made framework that matches the
\ncharacteristics of their own financial markets.”<\/p>\n
\nW.H. Fung, Wing Yan Lee, Jason J.H. Yeh and Fei Lung Yuen. Friend or foe: The divergent effects
\nof FinTech on financial stability<\/a>. Emerging
\nMarkets Review<\/i>, Volume 45, December 2020, 100727<\/p>\n
\narticle was first published in the China Business Knowledge (CBK) website by
\nCUHK Business School: https:\/\/bit.ly\/3swNHfZ<\/a>.<\/p>\n