Enhancing Loan Quality Through Transparency: Evidence from the European Central Bank Loan Level Reporting Initiative

56 Pages Posted: 12 Dec 2015 Last revised: 16 Dec 2016

See all articles by Aytekin Ertan

Aytekin Ertan

London Business School

Maria Loumioti

The University of Texas at Dallas

Regina Wittenberg Moerman

University of Southern California

Multiple version iconThere are 2 versions of this paper

Date Written: December 2016

Abstract

We explore whether transparency in banks’ securitization activities enhances loan quality. We take advantage of a novel disclosure initiative introduced by the European Central Bank, which requires, as of January 2013, banks that use their asset-backed securities as collateral for repo financing to report securitized loan characteristics and performance in a standardized format. We find that securitized loans originated under the transparency regime are of better quality with a lower default probability, a lower delinquent amount, fewer days in delinquency and lower losses upon default. Additionally, banks with more intensive loan level information collection and those operating under stronger market discipline experience greater improvement in their loan quality under the new reporting standards. Overall, we demonstrate that greater transparency has real effects by incentivizing banks to improve their credit practices.

Keywords: Securitization; Asset-backed securities; Transparency; Credit risk; Credit standards; Loan quality

JEL Classification: G14; G21; G23; M41

Suggested Citation

Ertan, Aytekin and Loumioti, Maria and Wittenberg Moerman, Regina, Enhancing Loan Quality Through Transparency: Evidence from the European Central Bank Loan Level Reporting Initiative (December 2016). Journal of Accounting Research, 2017, Available at SSRN: https://ssrn.com/abstract=2702126 or http://dx.doi.org/10.2139/ssrn.2702126

Aytekin Ertan

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
442070008131 (Phone)

Maria Loumioti (Contact Author)

The University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Regina Wittenberg Moerman

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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