2024 Theses Doctoral
Essays on Digital Banking
This dissertation studies how the digitalization of commercial banking affects bank competition, financial stability, and monetary policy transmission.
In the first chapter, The Digital Banking Revolution: Reduced Form Evidence, I use hand-collected data and a novel identification strategy to show that after adopting digital platforms, banks branchlessly operate in more markets, and mid-size banks, those with relatively high quality digital platforms but without extensive branch networks, grow faster. Further, bank balance sheet composition tilts to uninsured deposits on the funding side, and to high income borrowers on the loan side.
In the second chapter, The Digital Banking Revolution: Aggregate Effects on Competition and Stability, in order to disentangle the underlying mechanisms and quantify aggregate effects, I build a structural model of the U.S. banking system and compare the observed digital equilibrium to a counterfactual without digital platforms. The model allows for endogenous adoption of digital platforms, branch networks, market entry, and accounts for digitalization among non-banks. Digitalization decreases local and national market concentration, and average markups fall in deposit and loan markets, holding fixed the size of the banking sector. Consumers capture most of the surplus created by digitalization, however it accrues mostly to wealthier segments of the economy. As for stability, it increases the average market share of lightly-regulated mid-sized banks, increases the uninsured deposits ratio of the banking sector while re-sorting uninsured deposits towards larger digital banks, and doubles credit risks associated with lending in market segments that are less-well served by digital technologies. In sum, digital banking increases competition and poses risks to financial stability.
In the third chapter, Destabilizing Digital "Bank Walks", which is co-authored with Tano Santos and Luigi Zingales, we study the impact of digital banking on the value of the deposit franchise and the transmission of monetary policy through bank balance sheets. We find that when the Fed funds rate increases, deposits flow out faster and the cost of deposits increases more in banks with a digital platform. The results are similar for insured and non-insured deposits. We find that correcting for digital betas and deposit outflows results in a deposit franchise value that is significantly lower for digital-broker banks relative to a traditional bank without digital platform. We apply this analysis to Silicon Valley Bank (SVB) and find that the reduced value of the deposit franchise explains why SVB was insolvent in early March 2023, even before the bank run occurred.
Geographic Areas
Subjects
Files
- Koont_columbia_0054D_18378.pdf application/pdf 14.9 MB Download File
More About This Work
- Academic Units
- Business
- Thesis Advisors
- Santos, Tano
- Degree
- Ph.D., Columbia University
- Published Here
- September 4, 2024