Bank Asset Transparency and Credit Supply

Abstract

We employ the European Central Bank’s Loan-level Reporting Initiative as a shock to banks’ asset disclosures. We find that, after the regulation, treatment banks raise more capital at cheaper rates and increase lending. Using novel survey data on small businesses, we also document that, in regimes with heightened bank disclosures, borrowers receive greater funding, conditional on their demand for credit. Furthermore, companies whose relationship banks provide asset disclosures start to borrow and invest more, relative to other firms from the same country and industry. Collectively, our inferences suggest that asset disclosures alleviate the capital market frictions that banks face and allow them to supply more credit to the real economy.

Keywords: Asset Disclosures; External Financing; Credit Supply; Bank Regulation; Real Effects; Small Businesses

JEL Classification: G21, G28, G32, M41, M48