Does Fintech Improve the Risk-Taking Capacity of Commercial Banks? Empirical Evidence from China

As information technology and financial innovation advance, fintech has become increasingly important for commercial banks. Whether fintech can enhance banks' risk-taking capacity has become an important factor affecting financial stability. Based on China's Baidu search index, we use web crawler, text mining, and the global principal component analysis to construct a fintech index, and analyze the relationship between fintech and the risk-taking capacity. Then, we further investigate the mechanism by which fintech affects the risk-taking capacity from three dimensions of banking business structure: credit structure, debt structure, and income structure. The findings are summarized below. First, fintech in general can significantly improve the risk-taking capacity of commercial banks. Second, the heterogeneity test shows that fintech plays a more significant role in promoting the risk-taking capacity of small-scale banks, listed banks, and banks located in economically underdeveloped areas. Third, the mechanism test shows that fintech enhances the risk-taking capacity by changing the business structure of banks, especially by improving the credit capacity, expanding the deposit size, and diversifying the income structure. The above findings have important policy implications for banks and regulators in China.