FinTech capability and systemic risk in banking

This study examines whether banks’ financial technology (fintech) engagement contributes to systemic financial stability and through which channel such effects materialize. Using a panel of 42 Chinese commercial banks over 2012–2022, we construct a disclosure-based fintech index from banks’ annual reports and proxy systemic financial risk with a market-based measure of expected capital shortfalls under severe market downturns. The baseline results show that fintech-intensive banks exhibit significantly lower systemic risk. Mechanism tests indicate that fintech improves banks’ commercial investment efficiency, and that greater investment efficiency is associated with lower systemic risk; incorporating investment efficiency attenuates the fintech coefficient while preserving statistical significance, consistent with partial mediation. Heterogeneity analyses further reveal that the stabilizing effect is concentrated among state-owned banks, during economic expansion periods, and in environments with higher credit resource misallocation, implying that fintech delivers larger stability gains when governance constraints are stronger and allocation distortions are more severe. The findings suggest that bank digital transformation can function as a macro-prudential capability by strengthening investment discipline and mitigating the buildup of tail-risk vulnerabilities.