Loan Officer Authority and Small Business Lending: Evidence from a Survey

17 Pages Posted: 14 Aug 2010

Multiple version iconThere are 2 versions of this paper

Date Written: August 12, 2010

Abstract

A vast literature has emphasized that small banks are at a comparative advantage in small business lending. In this paper, we show that apart from size, which is negatively correlated with bank specialization in small business lending, organizational characteristics affect bank loan portfolio choices. By using a unique dataset based on a recent survey of Italian banks, we find that after having controlled for bank size, a branch loan officer’s authority has a key role in explaining bank specialization in small business lending. In particular, banks which delegate more decision-making power to their branch loan officers are more willing to lend to small firms than other banks. We approximate loan officers’ authority by controlling for several factors which shape their incentives: loan officer turnover, the amount of money up to which they are allowed to lend autonomously, their role in loan approval and in setting loan interest rates, the kind of information (soft versus hard information) used for screening and monitoring borrowers, and the structure of their compensation schemes.

Keywords: Bank organization, Small business lending, Loan officer authority

JEL Classification: G21, L15, L22

Suggested Citation

Benvenuti, Michele and Casolaro, Luca and Del Prete, Silvia and Mistrulli, Paolo Emilio, Loan Officer Authority and Small Business Lending: Evidence from a Survey (August 12, 2010). Available at SSRN: https://ssrn.com/abstract=1657856 or http://dx.doi.org/10.2139/ssrn.1657856

Michele Benvenuti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Luca Casolaro

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Silvia Del Prete

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paolo Emilio Mistrulli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

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