Credit Information Sharing and Loan Loss Recognition

83 Pages Posted: 8 May 2017 Last revised: 30 Dec 2019

See all articles by Karthik Balakrishnan

Karthik Balakrishnan

Rice University - Jesse H. Jones Graduate School of Business

Aytekin Ertan

London Business School

Date Written: December 30, 2019

Abstract

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

Balakrishnan, Karthik and Ertan, Aytekin, Credit Information Sharing and Loan Loss Recognition (December 30, 2019). Available at SSRN: https://ssrn.com/abstract=2964138 or http://dx.doi.org/10.2139/ssrn.2964138

Karthik Balakrishnan

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Aytekin Ertan (Contact Author)

London Business School ( email )

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

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