Why Are Commercial Loan Rates So Sticky? The Effect of Private Information on Loan Spreads
55 Pages Posted: 16 May 2019 Last revised: 20 Apr 2020
Date Written: April 11, 2020
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 the appearance of stickiness arises, in part, because the intensity of bank screening varies inversely 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.
Keywords: Bank lending, loan pricing, private information
JEL Classification: G21, G32
Suggested Citation: Suggested Citation