The analysis demonstrates a strong correlation between IT spending and banks’ underwriting decisions. This finding stood to reason, the researchers hypothesize, because serving different customers naturally requires different information capabilities.
For example, assessing the creditworthiness of small businesses with shorter track records might require gathering more “soft data” through face-to-face interactions with entrepreneurs. Refinancing home mortgages, by contrast, might demand more horsepower to crunch “hard data” such as credit scores. “As a consequence,” He, Jiang, Xu, and Yin write, “if banks specialize in different types of loan making, one should expect them to differ in their IT investment profiles.”
To explore these links in the United States, the researchers tapped a database—from marketing-services company Harte Hanks—that tracks technology adoption. They gathered details on more than 3 million IT purchases between 2010 and 2019 by 1,800 US commercial banks, or about 80 percent of the US banking sector. Loan data came from various federal sources, including Federal Financial Institutions Examination Council call reports, as well as data disclosed by banks following the Community Reinvestment Act and the Home Mortgage Disclosure Act.
Banks specializing in commercial and industrial loans—especially small-business loans—shelled out more for communication hardware than software, the researchers find. “If a bank is spending a lot on communication technology, that might be a good indicator as to whether it is committed to serving small businesses,” Jiang says. On the other hand, more underwriting of personal loans and mortgages correlated with larger investments in software, the researchers observe.