“If You Don't Know Me by Now ...” Information Collection by Banks in Lending to Private Firms

Abstract

What constitutes banks’ information collection on private firms? How does it deepen and change over time? Exploiting a comprehensive Federal Reserve’s supervisory dataset, we extract three dimensions of private information from banks’ internal credit ratings — depth and better/worse assessments — with all three related to various loan terms and performance. We then document how private information evolves as firm-bank relationships lengthen, with learning effects non-linear and peaking at about five years. Learning varies also: it is more salient at longer bank-firm distances, for smaller and more leveraged banks, for larger and riskier firms, and during non-COVID times.