Digital transformation, diversification and stability: what do we know about banks?

Banks focus on digital transformation to improve their overall efficiency and reduce operational costs. In this study, we argue that banks focusing on diversification might not benefit from digital transformation in context of stability. Precisely, this study explores the impact of digital transformation on banks’ stability while considering diversification as an important factor. Overall, the results suggest that investment in technology and increased diversification makes banks riskier and more fragile. More importantly, we report digital transformation and the diversification to be substitutes in impacting the stability. In other words, we show digital transformation is beneficial for banks with low-income diversification. The reported findings have implications.