Why Are Commercial Loan Rates So Sticky? The Effect of Private Information on Loan Spreads
52 Pages Posted: 16 May 2019 Last revised: 11 Jun 2019
Date Written: May 7, 2019
Past studies find that commercial loan spreads are “sticky,” in the sense that they do not fully respond to changes in market rates or observable firm credit risk characteristics. In this paper, we provide evidence that stickiness arises, in part, because the intensity of bank screening based on private soft information varies with changes in credit market conditions and observable firm credit risk characteristics. Our analysis demonstrates that stickiness in loan spreads does not necessarily indicate loan mispricing and may arise even in the absence of credit rationing, bank information monopolies, or behavioral biases in loan contracting.
Keywords: bank lending, loan pricing, private information
JEL Classification: G21, G32
Suggested Citation: Suggested Citation