Credit Information Sharing and Loan Loss Recognition
66 Pages Posted: 8 May 2017 Last revised: 2 Feb 2018
Date Written: December 20, 2017
Does enhancing banks’ information sets and understanding of credit risks improve their loan loss recognition practices? We study this question using a global data set of staggered initiation of public credit registries (PCRs). Mandated by national regulators, PCRs collect borrower and loan information from lenders, and share it with the banks in the financial system. This setting represents a plausibly exogenous improvement in banks’ assessment of loss events. We find that PCR initiations enhance the timeliness of banks’ loan loss provisioning — the extent to which loan loss reserves capture subsequent nonperforming loans. The effects are greater when PCRs are easier to access, contain and distribute more information, and enforce compliance. These findings are consistent with improvements in lenders’ information sets leading to better provisioning decisions.
Keywords: credit reform, information sharing, banking, lending, loan loss recognition
JEL Classification: D82, G21, G28, G32, M41, O16
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