Abstract
We use data on banks' patent applications and legal or regulatory violations by commercial banks to demonstrate that technological innovation increases operational risk in banks. This increase in risk is due to the introduction of complex technology, which may elevate the likelihood of technical malfunctions, especially when there is a misalignment between staff proficiency and the demands of these advanced systems. Furthermore, the impact of technological innovation on operational risk is predominantly observed in non-state-owned banks, banks with employees of lower educational levels, and banks with high levels of digitalization. Additionally, this effect is pronounced in banks lacking a history of technological failures and those operating within highly competitive environments. Overall, our findings underscore the effect of technological innovation on the operational management of commercial banks.
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