The inverted-u-shaped impact of fintech development on bank risk: A study of liability structure and economic uncertainty

In the evolving landscape of financial digitization, the implications of fintech development on commercial bank risk are increasingly vital. This research rigorously examines the depth and breadth of fintech's influence, particularly emphasizing the interplay between liability structures and periods of economic flux. A methodical econometric analysis was undertaken, analyzing panel data from 2011 to 2021, spanning 281 commercial banks. This research encompasses 15 national banks, 266 regional banks, 52 listed entities, and 229 unlisted institutions. Analysis leveraged the capabilities of Stata 17.0 software. The findings depart from a linear interpretation. Instead, fintech's impact on bank risk follows an inverted "U-shaped" trajectory-initially escalating risk, then mitigating it. The liability structure emerges as a consequential intermediary in this dynamic. Moreover, the influence of fintech varies depending on the bank type and equity composition. In times of economic volatility, this relationship is further accentuated. These insights hold paramount significance for commercial banks amid the current digital revolution. They provide a roadmap for judiciously balancing risk in a time when fintech innovations are dominating, ensuring resilience and adaptability in an unpredictable financial domain.