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on Payment Systems and Financial Technology |
| By: | Aman, Muhammad; Ali, Amjad; Audi, Marc |
| Abstract: | This research investigates the potential role of Bitcoin as a hedge against inflation across various countries, utilizing data spanning from 2015 to 2024. As central banks confront the inflationary pressures intensified by the global pandemic and fluctuations in international money supply, Bitcoin has gained increased attention. Proponents of Bitcoin contend that, similar to gold and in contrast to government-issued currencies, it is decentralized and has a limited supply, which theoretically protects it from inflationary erosion. However, due to the high volatility and speculative nature of cryptocurrencies, their practicality for facilitating monetary transactions remains contentious. Grounded in the positivist paradigm, this study employs ordinary least squares regression, dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity, panel fixed effects, and quantile regression methods, using monthly data on Bitcoin returns, inflation levels, and financial benchmarks across both developed and emerging economies. Empirical findings reveal that Bitcoin returns exhibit no significant correlation with inflation, either across the full sample or within advanced economies. The evidence explains that Bitcoin's valuation responds more to variables like exchange rates, interest rates, and speculative investor behavior than to inflation itself. Comparative performance analysis indicates that Bitcoin underperforms traditional inflation hedging instruments. During inflationary episodes, assets such as gold and Treasury Inflation-Protected Securities offer more reliable financial protection than Bitcoin. The study concludes that while Bitcoin does not effectively hedge against inflation, it may serve as a risk-diversification tool within portfolios under specific conditions. Due to its volatility, regulatory limitations, and weak inflation linkage, Bitcoin remains unsuitable for integration into conventional central banking frameworks. These insights offer practical implications for investors, portfolio managers, and policymakers navigating inflationary periods. Although Bitcoin may serve niche purposes, it should not be equated with traditional risk-hedging financial assets. |
| Keywords: | Bitcoin, Inflation Hedge, Cryptocurrency, Emerging Markets |
| JEL: | E4 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127489 |
| By: | Nicholas Ledden |
| Abstract: | Data on unbanked and underbanked households, their demographics and the use of Bank On products offer insight into Americans' access to banking services. |
| Date: | 2024–12–11 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00100:102748 |
| By: | Ullah, Mati; Ali, Amjad; Jadoon, Atif Khan |
| Abstract: | This paper examines the growing threat that quantum computing presents to blockchain security. Core blockchain cryptographic frameworks, specifically the Elliptic Curve Digital Signature Algorithm and the Secure Hash Algorithm 256, are vulnerable to quantum algorithms. Both the Shor algorithm and the Grover algorithm are capable of breaking the Elliptic Curve Digital Signature Algorithm, enabling attackers to calculate private keys from public keys, while the Grover algorithm can also compromise hash-based systems that depend on brute-force methods, such as Proof-of-Work. On-chain analysis indicates that billions of dollars’ worth of crypto-assets are held in addresses susceptible to these quantum attacks. A proposed countermeasure is migration to Post-Quantum Cryptography, which incorporates quantum-resistant algorithms, such as CRYSTALS-Dilithium and Falcon. However, this migration introduces a trilemma among network security, decentralization, and performance. Post-Quantum Cryptography algorithms significantly increase transaction sizes and computational costs, which pose economic and technical challenges for large blockchain networks. The paper further discusses how the timeline for quantum advancements will be shaped by geopolitical competition, and how the catch-the-crop, decrypt-later strategy puts current data at risk from future quantum decryption. It emphasizes that active migration to Post-Quantum Cryptography is urgent, calling on stakeholders to prioritize system audits, transition to cryptographically flexible infrastructures, promote research into quantum-resistant solutions, and establish governance frameworks that enable prompt and decentralized upgrades. |
| Keywords: | Quantum Computing, Blockchain Security, Post-Quantum Cryptography, Shor’s Algorithm, Grover’s Algorithm, Cryptographic Vulnerability |
| JEL: | O3 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127528 |
| By: | Wataru Takahashi (Research Institute for Economics and Business Administration, Kobe University, JAPAN); Taiji Inui (ISO/TC68, ISO20022 Payments & Securities SEG, and Citron Systems, JAPAN) |
| Abstract: | Central Bank Digital Currencies (CBDCs) are planned in many countries (central banks) and implemented in some countries. CBDCs issued as legal tender by central banks must guarantee both security and anonymity. This paper discusses network infrastructure requirements for securely transmitting digital assets having value themselves like CBDCs. For this purpose, a method to implement an infrastructure to securely transmit CBDCs using Public Key Infrastructure (PKI) is discussed. |
| Keywords: | CBDC; ADCC; Central bank; Two-tier system; PKI; DLT; CA; Digital device |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2026-06 |
| By: | Mr. Eugenio M Cerutti; Melih Firat; Martina Hengge; Takaaki Sagawa |
| Abstract: | We develop novel measures of stablecoin shocks and use them to identify the causal effects of stablecoin adoption on U.S. financial markets. Combining a daily narrative dataset of stablecoin-specific news with changes in the combined market capitalization of USDC and USDT, we measure high-frequency movements in stablecoin market capitalization and implement heteroskedasticity-based identification within an event-study and SVAR-IV framework. Stablecoin demand shocks have triggered persistent declines in short-term Treasury yields, a depreciation of the U.S. dollar, and gradual spillovers into crypto and equity markets. We also document heterogeneous effects across firms: payment providers benefit from greater stablecoin adoption, whereas banks—including community and small banks—show no evidence of priced disintermediation risk. Our findings highlight stablecoin demand as a novel channel of asset-market transmission. |
| Keywords: | Stablecoin; Payment Systems; Crypto; Financial Markets |
| Date: | 2026–03–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/044 |
| By: | Scott A. Wolla |
| Abstract: | An opinion piece offers strategies for responsible credit card management, including tracking spending, setting a budget and choosing how to pay down balances. |
| Date: | 2024–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00100:102725 |
| By: | Melecky, Martin; Singer, Dorothe |
| Abstract: | This paper investigates the determinants of saving behavior—both formal and informal—using individual-level data from the 2021 Global Findex database, covering more than 139, 000 adults across 138 countries. The analysis employs a Heckman selection model to distinguish between the decision to save any money and the decision to save formally using a financial account. Key findings reveal that individuals in the poorest 40 percent of households, those with only primary education, and those out of the workforce are significantly less likely to save and even less likely to save formally. While women are equally likely as men to save any money, they are less likely to save formally. Country-level factors also play a critical role. Tax-incentivized savings schemes are associated with an increase in formal saving and an increase in saving overall. Deposit insurance for e-money accounts is positively correlated with both saving any money and saving formally, particularly among low-income individuals. Conversely, a higher share of government-owned bank assets is associated with lower saving rates, and Muslim-majority countries exhibit significantly lower formal saving, likely due to religious constraints on interest-bearing accounts. Policy recommendations include expanding tax-incentivized savings schemes, extending deposit insurance to digital financial services, promoting financial literacy, encouraging wage payments into accounts, reassessing the role of state-owned banks, and, where relevant, supporting Sharia-compliant financial products. Targeted interventions for women and low-income groups are essential to closing persistent gaps in financial inclusion. |
| Date: | 2026–02–24 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11322 |
| By: | Mniestri, Katerina; Poell, Thomas |
| Abstract: | This article examines the process of platformization from the perspective of platform complementors. It focusses on Dutch complementors—retailers, news organizations, transportation companies, and software start-ups—that developed Conversational Actions for Google Assistant. The analysis builds on a combination of digital fieldwork and interviews with Dutch developers, conversational specialists, and marketing and communication managers between 2018 and 2021. Pushing back against the dominant focus on successful platforms, we demonstrate that platformization needs to be understood as a balancing act, marked by frictions that arise in attempts to align expectations, interests, concerns, and objectives of different actors. Our findings show that complementors’ imaginaries of a Dutch assistant conflicted with Google’s global priorities, revealing the limits of localization in platform infrastructures. Moreover, we highlight the asymmetry between complementors’ expectation of a linear platform development and Google’s circular strategy of continuous reconfiguration of infrastructures and platforms to capture specific markets. |
| Keywords: | boundary resources; Google Assistant; platform failure; platformization; platforms; sociotechnical imaginaries; virtual assistants; Boundary resources |
| JEL: | L81 R14 J01 |
| Date: | 2026–02–26 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:131069 |
| By: | Wenbin Wu |
| Abstract: | DeFi protocols stack derivative tokens atop one another, yet the resulting structure of claims remains unmapped. Applying the Money View framework, we show that DeFi functions as a layered credit hierarchy that mirrors conventional banking: each protocol accepts tokens and issues new claims against them, creating tiers of increasingly derived assets. By late 2025, each dollar of base assets supported $4.7 of total claims, with lending and staking driving over 80% of this layering. Position in this hierarchy shapes yields. Reported rates rise with tier depth (+2.0 pp per tier) because lending protocols, which pay higher rates, concentrate in deeper tiers. Yet after correcting for this composition effect, yields fall with each derivation step (-2.9 pp per hop), reflecting lower borrowing demand for nested tokens. The tier premium widens during crises, consistent with repricing of upstream dependency risk. These findings reframe DeFi's "double counting" problem as a structural risk question and provide a macro-prudential metric for tracking system-wide leverage. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.01803 |
| By: | Laura Taylor |
| Abstract: | Will banks exchange ripped money? If more than half a paper note is present, you may be able to exchange worn currency at a commercial bank. But mutilated cash may require redemption through the U.S. Bureau of Engraving and Printing. |
| Date: | 2025–09–10 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00100:102776 |
| By: | Nidhaleddine Ben Cheikh (ESSCA School of Management); Christophe Rault (University of Orléans) |
| Abstract: | This paper examines how financial inclusion, among other factors, shapes the transition to inclusive and sustainable growth in a sample of 67 countries. We first analyze the heterogeneous and asymmetric relationship between inclusiveness and its main determinants using recent panel quantile regression techniques. Our results suggest that the distributional effect of financial inclusion, institutional quality and ICT diffusion is statistically significant only in the lower tail of the conditional distribution. While both financial inclusion and ICT are detrimental to inclusive growth, institutional quality appears to be conducive to greater shared prosperity. We next examine the existence of mediating effect in the process of inclusiveness using nonlinear panel threshold modelling. Our results highlight the mediating role of financial inclusion in achieving more inclusive and sustainable growth. While ICT infrastructure has a negative impact on growth inclusiveness at low levels of financial inclusion, a positive relationship is found when financial affordability exceeds a certain threshold. Policymakers are called upon to harness the combined impact of financial inclusion, governance quality and ICTs to ensure the inclusiveness of economic growth. |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1803 |
| By: | Mouzoun Zakarya (ENCG - UIT - ECOLE NATIONALE DE COMMERCE ET DE GESTION - KENITRA); Ammi Anouar (ENCG - UIT - ECOLE NATIONALE DE COMMERCE ET DE GESTION - KENITRA) |
| Abstract: | This article explores the link between financial inclusion and quality of life in Morocco using Multiple Correspondence Analysis (MCA) on a sample of 120 individuals. Financial inclusion is analyzed through its three dimensions: access, use, and perceived quality. Results show that the first factorial dimension, explaining nearly 78% of the variance, is shaped by effective use, service quality, and education/personal development, demonstrating that inclusion depends more on appropriation than on simple access. The second dimension, representing 45% of the variance, underlines the crucial role of trust in financial institutions, where transparency and institutional relationships determine the depth of inclusion. Variables related to poverty and inequality reduction are weakly discriminant, suggesting impacts are mostly macroeconomic and long-term. The study reinforces the multidimensional nature of financial inclusion, highlighting often neglected variables such as trust and financial literacy, while stressing the need for policies focused on quality and financial education to achieve meaningful and sustainable inclusion in Morocco. |
| Abstract: | Cet article explore les liens entre inclusion financière et qualité de vie des individus au Maroc à travers l'Analyse des Correspondances Multiples (ACM) menée sur un échantillon de 120 individus. L'inclusion est étudiée selon trois dimensions principales : accès, utilisation et qualité perçue des services financiers. Les résultats montrent que la première dimension factorielle, expliquant près de 78 % de la variance, est dominée par l'utilisation des services, la perception de leur qualité et l'éducation/développement personnel, confirmant que l'inclusion repose davantage sur l'appropriation des produits que sur le seul accès. La deuxième dimension, représentant 45 % de la variance, souligne le rôle central de la confiance envers les institutions financières, essentielle pour renforcer la transparence et la relation institutionnelle. Sur le plan théorique, cette étude confirme le caractère multidimensionnel de l'inclusion et met en lumière des variables souvent négligées comme la confiance et la littératie financière, tandis que sur le plan empirique, elle insiste sur la nécessité de politiques publiques axées sur la qualité et l'éducation financière pour améliorer durablement la vie des populations. |
| Keywords: | Confiance institutionnelle, Littératie financière Financial inclusion, Quality of life, Multiple Correspondence Analysis (MCA), Morocco, Institutional trust, Financial literacy, Maroc, Analyse des Correspondances Multiples (ACM), Qualité de vie, Inclusion financière |
| Date: | 2025–10–15 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05451263 |
| By: | Doreen Fagan |
| Abstract: | Learn where digital native Gen Zers turn for financial guidance, and check out some trusted personal finance resources from the St. Louis Fed. |
| Date: | 2024–03–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00100:102722 |
| By: | Bing Han; Haoyang Liu; Pengfei Sui |
| Abstract: | Using new data on social interactions and individual trading records in the Bitcoin market, we show that investor sentiment spreads across social connections. Investors systematically revise their beliefs about Bitcoin prices in the direction of average peer sentiment—even though that sentiment does not predict future prices. We document specific patterns in the diffusion of beliefs across networks, including evidence consistent with confirmation bias. Moreover, this social-sentiment contagion influences both individual trading decisions and overall market dynamics. Our novel measure of contagion intensity significantly forecasts Bitcoin volatility, trading volume and market crashes. |
| Keywords: | social interactions; belief updating; sentiment contagion; bitcoin; bubbles |
| JEL: | G11 G12 G41 G53 |
| Date: | 2026–03–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:102864 |
| By: | Altavilla, Carlo; Boucinha, Miguel; Burlon, Lorenzo; Adalid, Ramón; Fortes, Roberta; Maruhn, Franziska |
| Abstract: | This paper studies the effects of stablecoin adoption—crypto-assets designed to maintain a stable value relative to a reference asset—on bank intermediation and the transmission of monetary policy. Using evidence from the rapid expansion of stablecoins combined with confidential granular data on euro area banks and their individual borrowers, we document three main findings. First, stablecoin adoption induces a deposit-substitution mechanism, whereby funds shift from retail bank deposits to digital assets. This reallocation increases banks’ reliance on wholesale funding and can ultimately constrain their intermediation capacity. Second, we show that stablecoins alter the passthrough of policy rates to bank funding costs and lending conditions and potentially weaken the predictability of policy actions. These effects are nonlinear and depend critically on the scale of stablecoin adoption, their design features, and their regulatory treatment. Third, we document a potential risk associated with the growing prevalence of foreign-currency-denominated stablecoins. Their diffusion is likely to increase banks’ reliance on foreign-currency wholesale funding. We show that banks with greater exposure to this source of funding exhibit a weaker loan-supply response to domestic monetary policy shocks, indicating a weakening of monetary policy transmission and a potential erosion of monetary sovereignty. JEL Classification: E52, E44 |
| Keywords: | bank lending, deposit substitution, monetary transmission, stablecoins |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263199 |
| By: | Ozili, Peterson K |
| Abstract: | Social finance is an emerging concept that seeks to increase financial flows to activities and projects that improve society and the world while generating financial returns. This chapter examines the link between digital finance, green finance, and social finance. It also explores the empirical link between people's interest in information about these three types of finance. The empirical analyses show a strong positive correlation between people's interest in digital, green, and social finance information. A unidirectional causality exists between interest in social and green finance information. People's interest in social finance information significantly negatively impacts their interest in digital finance information.In contrast, interest in social finance information significantly positively affects green finance information. The findings imply that social finance is linked to digital and green finance. Thus, policymakers should not explore social finance opportunities in isolation. Instead, they should investigate the intersection between digital, green, and social finance. |
| Keywords: | Digital finance, green finance, social finance, information, investment, society, environment. |
| JEL: | G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127374 |
| By: | Mike Eggleston |
| Abstract: | Bank On account openings surpassed 4.8 million in 2024—a 20% increase from 2023—according to data reported by financial institutions to our BOND Hub. |
| Keywords: | Bank On accounts; Bank On National Data Hub; affordable banking |
| Date: | 2026–02–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:102818 |
| By: | Austin Roberts |
| Abstract: | Posts on consumer debt, gross domestic product and the labor market are among those drawing the most interest so far this year on St. Louis Fed social media accounts. |
| Date: | 2024–11–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00100:102745 |
| By: | Bahaj, Saleem; Reis, Ricardo |
| Abstract: | While the USD dominates cross-border transactions today, a few other currencies are also used internationally. This paper shows that central bank policies that reduce the volatility of borrowing costs for foreign firms in domestic currency can trigger a jumpstart of the currency’s international status, because firms’ choices of the currency of their working capital complement their sales invoicing. Empirically, the creation of swap lines by the People’s Bank of China between 2009 and 2018 supports this theoretical claim. Signing a swap line with a country is associated with an increase in the probability that the country would use the RMB at all by 12%, and a four-fold increase in the value of the country’s RMB payments. |
| Keywords: | lender of last resort; internationalization; dollar dominance |
| JEL: | E44 E58 F33 F41 G15 |
| Date: | 2026–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128001 |
| By: | Sauvé, Edwige |
| Abstract: | This paper develops a framework in which a multiproduct ecosystem competes with multiple single-product firms in both price and innovation. The ecosystem can use data from one product to improve the quality of its other products. We use the framework to study three regulatory policies aimed at leveling the playing field. Restricting the ecosystem’s cross-product data usage, or forcing it to share data with single-product firms, benefits those firms and induces them to innovate more. However, these policies also dampen the ecosystem’s incentive to collect data and innovate, potentially raising prices. Consumers are better off only when single-product firms are sufficiently good at innovating. Facilitating data exchange between single-product firms via a data cooperative can backfire and harm them, because it induces the ecosystem to price more aggressively. For both the data-sharing and data-cooperative policies, there exist data-compensation schemes such that consumers are better off compared to no regulation. |
| Keywords: | Digital ecosystems; innovation; data regulation; data cooperative |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131492 |
| By: | Fabrizio Dimino; Bhaskarjit Sarmah; Stefano Pasquali |
| Abstract: | The rapid adoption of large language models (LLMs) in financial services introduces new operational, regulatory, and security risks. Yet most red-teaming benchmarks remain domain-agnostic and fail to capture failure modes specific to regulated BFSI settings, where harmful behavior can be elicited through legally or professionally plausible framing. We propose a risk-aware evaluation framework for LLM security failures in Banking, Financial Services, and Insurance (BFSI), combining a domain-specific taxonomy of financial harms, an automated multi-round red-teaming pipeline, and an ensemble-based judging protocol. We introduce the Risk-Adjusted Harm Score (RAHS), a risk-sensitive metric that goes beyond success rates by quantifying the operational severity of disclosures, accounting for mitigation signals, and leveraging inter-judge agreement. Across diverse models, we find that higher decoding stochasticity and sustained adaptive interaction not only increase jailbreak success, but also drive systematic escalation toward more severe and operationally actionable financial disclosures. These results expose limitations of single-turn, domain-agnostic security evaluation and motivate risk-sensitive assessment under prolonged adversarial pressure for real-world BFSI deployment. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.10807 |
| By: | Koji Takahashi; Joon Suk Park |
| Abstract: | This study uses ChatGPT to simulate survey responses about payment apps, focusing on privacy and perceived benefits. By designing prompts that mirror real user characteristics, the generated responses align with findings from a Dutch survey, especially when grouped by privacy concern. Privacy-concerned agents view apps less favorably, while users show more positive attitudes than non-users, even without such traits in the prompt. However, ChatGPT fails to match the real survey's response variability and tends to overstate privacy concerns. These results indicate that generative AI can complement but not replace human surveys for studying perceptions of payment tools. |
| Keywords: | ChatGPT, generative artificial agents, privacy paradox, Westin index, survey, payment |
| JEL: | M31 C83 C45 D12 L86 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1333 |
| By: | Costa Filho, João Ricardo |
| Abstract: | What was the impact of the Marco Civil da Internet (MCI), Brazil's Digital Bill of Rights enacted in 2014, on the landscape of tech-related lawsuits in the country? Utilizing a synthetic control methodology, we construct a counterfactual scenario to estimate the number of lawsuits that would have occurred in the absence of the MCI. Our findings indicate a statistically significant decrease in the judicialization of internet-related disputes following the law's implementation. This suggests that while the MCI aimed to establish a robust legal framework for internet governance, it concurrently fostered a lesser litigious environment, particularly concerning intermediary liability and content moderation. |
| Keywords: | Brazilian Digital Bill of Rights; Marco Civil da Internet; Synthetic Control |
| JEL: | K19 K20 |
| Date: | 2026–01–19 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127781 |
| By: | Yixuan Liu; Hua Zhang; Eric Zou |
| Abstract: | Prepaid consumption is a common feature of modern consumer markets and is often presented as a mutually beneficial arrangement: consumers receive upfront discounts, and firms secure future sales. We analyze a large-scale Pay Now, Buy Later (PNBL) program in which consumers prepay for restaurant credit with bonuses, and spend the balance later. Using detailed transaction data from over 4 million consumers, we document widespread balance breakage: approximately 40% of prepaid value is never used. Because many consumers underutilize their balances, merchants recover significantly more than the bonus cost. The median firm earns roughly $5.5 in breakage profit for every $1 of bonus credit issued. While PNBL participation does lead to modest increases in consumer spending over time, firms gain substantially more from breakage than from any loyalty-driven revenue. These findings challenge the prevailing win–win narrative: PNBL schemes often result in a significant transfer from consumers to firms. We develop a stylized contract model to illustrate the misaligned incentives firms face, and show through counterfactual analysis that a simple escrow policy with an appropriately chosen deposit requirement can realign firm incentives and generate more consumer-serving outcomes. |
| JEL: | D12 D90 G23 G41 K20 L14 L81 M31 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34918 |
| By: | Wenli Li; Xiaoqing Zhou |
| Abstract: | The adoption of new technologies is widely viewed as a key driver of the rapid growth of nonbanks in the U.S. mortgage market after the Global Financial Crisis (GFC). This paper studies technology investment by mortgage lenders and its implications for post-GFC market structure. Using a new dataset on lender-level technology investment merged with loan origination records and balance-sheet information, we document that technology-related human capital investment has risen over time, driven disproportionately by banks and larger lenders, and that such investment predicts higher subsequent productivity. We then estimate lenders’ investment responses to two major shocks: the expansion of FinTech lending and monetary policy-driven demand shocks. Our instrumental-variable estimates suggest that banks increase technology investment in response to FinTech growth, whereas nonbanks respond weakly or even negatively; in contrast, nonbanks respond more strongly to positive demand shocks. To quantify the relative contributions of these shocks to changes in market structure, we build a heterogeneous-firm model consistent with the empirical evidence. The model implies that the post-GFC nonbank expansion was largely driven by a combination of favorable shocks—strong demand and tighter bank regulation—rather than broad-based technological advantages among nonbanks. Consequently, in a prolonged high-interest-rate environment with relaxed bank regulation, as may characterize the post-2025 policy environment, the model predicts a decline, rather than continued growth, in nonbanks’ market share. |
| Keywords: | fintech; mortgage; financial intermediation; firm dynamics; investment; labor |
| JEL: | D22 D25 E22 E24 E44 G21 G23 |
| Date: | 2026–02–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:102859 |
| By: | Jimmy Risk; Shen-Ning Tung; Tai-Ho Wang |
| Abstract: | This paper develops a robust mathematical framework for Constant Function Market Makers (CFMMs) by transitioning from traditional token reserve analyses to a coordinate system defined by price and intrinsic liquidity. We establish a canonical parametrization of the bonding curve that ensures dimensional consistency across diverse trading functions, such as those employed by Uniswap and Balancer, and demonstrate that asset reserves and value functions exhibit a linear dependence on this intrinsic liquidity. This linear structure facilitates a streamlined approach to arbitrage-free pricing, delta hedging, and systematic risk management. By leveraging the Carr-Madan spanning formula, we characterize Impermanent Loss (IL) as a weighted strip of vanilla options, thereby defining a fine-grained implied volatility structure for liquidity profiles. Furthermore, we provide a path-dependent analysis of IL using the last-passage time. Empirical results from Uniswap v3 ETH/USDC pools and Deribit option markets confirm a volatility smile consistent with crypto-asset dynamics, validating the framework's utility in characterizing the risk-neutral fair value of liquidity provision. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.01344 |