The Harmonization of Lending Standards within Banks through Mandated Loan-Level Transparency

54 Pages Posted: 5 Jun 2019 Last revised: 4 Jan 2021

See all articles by Jung Koo Kang

Jung Koo Kang

University of Southern California - Marshall School of Business

Maria Loumioti

The University of Texas at Dallas

Regina Wittenberg Moerman

University of Southern California

Multiple version iconThere are 2 versions of this paper

Date Written: January 4, 2021

Abstract

We explore whether the introduction of transparent reporting rules increases credit standard harmonization within a bank. We exploit the new loan-level reporting rules imposed on banks that borrow from the European Central Bank using repurchase agreements collateralized by their asset-backed securities. We compare credit terms of similar mortgages issued by a bank across a country’s regions and find that harmonization increases following the adoption of the new reporting rules. Learning and regulatory scrutiny constitute mechanisms underlying this economic effect. We also show that harmonization leads to more favorable lending terms to borrowers and higher loan quality for banks. Overall, these findings suggest that transparent reporting rules incentivize banks to improve their internal decision-making and thereby reduce regional divergence in their credit standards.

Keywords: transparency, external and internal reporting, credit term harmonization, learning, regulatory scrutiny

JEL Classification: M41, G21, D83

Suggested Citation

Kang, Jung Koo and Loumioti, Maria and Wittenberg Moerman, Regina, The Harmonization of Lending Standards within Banks through Mandated Loan-Level Transparency (January 4, 2021). Journal of Accounting & Economics (JAE), Vol. 71, No. 1, 2021, Available at SSRN: https://ssrn.com/abstract=3393992 or http://dx.doi.org/10.2139/ssrn.3393992

Jung Koo Kang

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

Maria Loumioti (Contact Author)

The University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Regina Wittenberg Moerman

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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