Cornell Law School Professor Dan Awrey has just released a timely new working paper that delves into one of the most pressing challenges facing modern finance: the disruptive power of technology on traditional banking. Titled Banking, Technology, and Instability, the paper examines how rapid technological change is upending bank business models, altering what customers expect from the financial safety net, and potentially heightening risks to overall financial stability.
Awrey begins by noting that banks have long relied on outsourcing key technology functions to specialized providers.
However, as digital tools have become central to core banking activities, a reversal is underway.
A new generation of fintech platforms is now flipping the script.
Instead of banks contracting out tech support, these platforms are effectively outsourcing essential banking services—such as deposit-taking, credit and debit card issuance, and payment processing—to partner banks.
This emerging “banking-as-a-service” (BaaS) model allows fintech firms to offer banking-like experiences without holding a full banking charter themselves.
The shift, Awrey argues, stems from fintechs’ technological and organizational strengths.
Yet it also thrives on regulatory arbitrage: fintech companies can sidestep the heavy compliance burdens that apply directly to chartered banks while still tapping into the protections and infrastructure those banks provide.
This arrangement creates what the paper describes as profound business-model instability for traditional banks, which increasingly act as behind-the-scenes enablers rather than primary customer-facing institutions.
A critical consequence is growing uncertainty among customers about the scope of the financial safety net.
When users interact with sleek fintech apps backed by partner banks, many assume their deposits or transactions enjoy the same federal insurance and legal safeguards as direct bank accounts.
In reality, the layered BaaS structure can blur these protections, leading to mismatched expectations.
Awrey warns that this “expectations instability,” combined with fragile bank business models, could accelerate bank runs or even spark broader panics if confidence erodes.
📢👷🏼🛠️ NEW WORKING PAPER exploring the impact of technological disruption on bank business models, consumer expectations, and financial stability. Questions, comments, and suggestions all very welcome: https://t.co/vKueJFk8nv pic.twitter.com/4q8X8i0lNh
— Dan Awrey (@DanAwrey) February 20, 2026
The paper carefully traces how these dynamics interact. When customers perceive their funds as fully protected but discover gaps during stress events, panic can spread rapidly.
Traditional run risks—already inherent to fractional-reserve banking—may be amplified by the speed and interconnectedness of digital platforms.
Awrey evaluates a range of policy responses to this “triple cocktail” of instability.
Options range from modest tweaks, such as stricter recordkeeping rules for banks in BaaS partnerships, to more ambitious measures like new liability frameworks that clarify responsibility between banks and fintechs.
At the far end, he considers fundamental reforms to the regulatory perimeter—redefining which entities fall under full banking oversight—and adjustments to the financial safety net itself to better match today’s hybrid ecosystem.
By shining a spotlight on these interconnected risks, the paper makes a compelling case for proactive regulatory thinking.
Technological disruption is not merely reshaping how banking is delivered; it is quietly rewriting the rules of stability and consumer protection in ways that demand fresh scrutiny.
The working paper is available now on SSRN (abstract 6276878). Professor Awrey has encouraged questions, comments, and suggestions from researchers, practitioners, and policymakers as the paper moves toward formal publication.
This latest contribution from one of academia’s leading voices on financial regulation arrives at a pivotal moment.
With fintech partnerships proliferating and digital banking expanding globally, understanding the subtle instabilities they introduce has never been more urgent. Awrey’s analysis offers both a clear diagnosis and a roadmap for safeguarding the system as technology continues to redefine banking.