Lifting the Banking Veil: Credit Standards’ Harmonization Through Lending Transparency

80 Pages Posted: 24 Jan 2020

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, 2020

Abstract

We explore whether the transparency in banks’ lending activities enhances the harmonization of credit terms that a bank offers across its different geographic regions. We take advantage of a novel loan-level reporting initiative by the European Central Bank, which requires repo borrowing banks that pledge their asset-backed securities as collateral to disclose granular information on loan characteristics and performance. We find that loans originated under the transparency regime share more similar interest rate, loan-to-collateral-value ratio and maturity compared to same-purpose loans issued by the same bank in different regions. Underperforming regional branches and those with less easily accessible peer-branches experience greater convergence in their credit terms, suggesting that transparency facilitates learning across a bank’s different geographic regions. Additionally, banks that face stronger regulatory scrutiny are more likely to alleviate credit term disparities under the transparency regime. Overall, our findings suggest that transparency enhances the within-bank harmonization of lending practices.

Keywords: credit market, harmonization, learning, regulatory scrutiny, transparency

JEL Classification: M41, G21, D83

Suggested Citation

Kang, Jung Koo and Loumioti, Maria and Wittenberg Moerman, Regina, Lifting the Banking Veil: Credit Standards’ Harmonization Through Lending Transparency (January, 2020). ECB Working Paper No. 2367. Available at SSRN: https://ssrn.com/abstract=3524901

Jung Koo Kang (Contact Author)

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

701 Exposition Blvd
Los Angeles, CA 90089
United States

Maria Loumioti

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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