Credit Information Sharing and Loan Loss Recognition
83 Pages Posted: 8 May 2017 Last revised: 30 Dec 2019
Date Written: December 30, 2019
Does enhancing banks’ information sets and understanding of credit risks improve loan loss recognition? We study this question using a global dataset of staggered initiations and coverage increases 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 significant improvement in banks’ assessment of loss events. We find that PCR initiations and coverage reforms enhance the timeliness of banks’ loan loss recognition—the extent to which loan loss provisions capture subsequent nonperforming loans. The effects are greater when PCRs distribute more information and are not driven by changes in borrower quality or supervisory stringency. Overall, these inferences are consistent with improvements in banks’ information sets leading to better provisioning decisions.
Keywords: credit reform, information sharing, banking, lending, regulation, loan loss provisions
JEL Classification: D82, G21, G28, G32, M41, O16
Suggested Citation: Suggested Citation