FinTech penetration, charter value, and bank risk-taking

Using a sample of U.S. community banks and FinTech loans data from LendingClub and Prosper, I find that banks' future change in risk-taking is positively associated with their current exposure to FinTech penetration. Path analysis shows that FinTech penetration influences bank risk-taking through the erosion of bank charter value. Additionally, cross-sectional analysis shows that the risk-increasing effect of FinTech penetration is stronger for banks with lower ex-ante charter value and greater reliance on hard information. My results are robust to alternative measures of bank risk-taking and FinTech penetration, propensity score matching, and a battery of sensitivity and additional tests. Regarding policy implications, the findings imply that reasonable estimations of banks' charter value may serve as an early indicator of banks' future risk-taking incentives.