Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures
52 Pages Posted: 7 Dec 2020
Date Written: December 3, 2020
We show that loan origination time is key for bank lending standards, cycles, defaults and failures. We exploit the credit register from Spain, with the time of a loan application and its granting. When VIX is lower (booms), banks shorten loan origination time, especially to riskier firms. Bank incentives (capital and competition), capacity constraints, and borrower-lender information asymmetries are key mechanisms driving results. Moreover, shorter (loan-level) origination time is associated with higher ex-post defaults, also using variation from holidays. Finally, shorter precrisis origination time — more than other lending conditions — is associated with more bank-level failures in crises, consistent with lower screening.
Keywords: loan origination time, lending standards, credit cycles, defaults, bank failures, screening
JEL Classification: G01, G21, G28, E44, E51
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