Stress Testing Banks’ Digital Capabilities: Evidence from the COVID-19 Pandemic
Alan Kwan, Chen Lin, Vesa Pursiainen, and Mingzhu Tai
Banks’ IT capabilities affect their ability to serve customers during the COVID-19 pandemic, which generates an unexpected and unprecedented shock that shifts banking services from in-person to digital. Amid mobility restrictions, banks with better IT experience larger reductions in physical branch visits and larger increases in website traffic, implying a larger shift to digital banking. Stronger-IT banks are able to originate more PPP loans to small business borrowers, especially in areas with more severe COVID-19 outbreaks, higher internet use, and higher bank competition. Those banks also attract more deposit flows and receive better mobile customer reviews during the pandemic.