811660978

I examine how traditional depository banks respond to increased competition from fin-tech firms. My identification strategy exploits the staggered adoption of the regulatory sandbox legislation in some US states. I first show that the adoption of regulatory sandboxes leads to an 8% increase in the number of fintech startups. Using bank-level employment data collected from LinkedIn, I find that the rise in fintech firms leads banks to increase wages and employment of high-skilled workers. At the same time, banks close more branches. Overall, my results suggest that banks boost high-skilled employment and close costly branches in a bid to be more responsive to the potential disruptions from fintech firms.