Bank for International Settlements gives mixed message on systemic risk
Fintech's impact on systemic risk has been assessed by the Bank for International Settlements in a detailed study, but the message is mixed.
Fintech could weaken global financial stability because it can lower lending standards and reinforce credit cycles.
A new report by the Bank for International Settlements - the central banks’ central bank - says that the growth of fintech credit in the financial system offers great promise for those who have been ripped off or denied credit by traditional lenders.
But, the report warned, fintech may also raise systemic risk because its lending can be “pro-cyclical”, undermine lending standards, and its products have never been tested in a credit crunch.
“If FinTech credit achieves a significant share of credit markets, it may give rise to systemic risk concerns,” the report said.
“Increased financial inclusion associated with FinTech credit could also lower lending standards in countries where credit markets are already deep. Moreover, FinTech credit provision could be relatively procyclical.”
At this stage at least the threat to stability posed by fintech is limited, the report noted, because fintech credit is only a very small fraction of the global lending stock.
China has by far the largest fintech market, and even there fintech only accounts for US$100 billion of the Chinese market. In the UK, which has one of the most developed fintech sectors and some of the most reliable data, fintech only accounted for 1.4 percent of consumer and SME lending as of end-2016.
The threat is mitigated further by the fact that the growth rate of fintech credit has declined in every jurisdiction from 2014-2017.