Credit Spread Determinants? Yes, Loan Officer Seniority Matters!

Abstract

This paper investigates whether loan officer's level of seniority within the bank explains credit spreads. Based on a unique hand-collected database on loan applications from SMEs to a French cooperative bank between 1996 and 2009, the study suggests that senior loan officers charge higher interest rates than novice officers when -1- the bank-firm relationship is stronger and -2- the business climate is less favorable. The first result supports the idea that seniority of loan officers is a factor that fosters the hold-up problem while the second result shows that senior loan officers integrate the business climate into their pricing strategy to a greater extent than novice officers.

Keywords: banks, loan officers, relationship lending, small business

JEL Classification: G21