N°26-54: From Tellers to Tech: Labor Demand Shift and Bank Lending

Using a novel measure of the composition of bank hiring, we examine how a labor demand shift affects bank lending. We find that the banks' demand shift toward higher-skilled labor is positively associated with lending. At the same time the banker-machine replacement also increases lending, through channels of operating efficiency, productivity, and lending capacity. This effect is stronger for banks that hire tech-bankers paying high wages. Conversely, lending shrinks for banks that reduce the number of relationship bankers. This effect is more concentrated among small banks and seems driven by declines in commercial and industrial loans. Overall, our findings indicate that the recent transformation in bank hiring expands credit supply, yet possibly also erodes relationship lending.