Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures

52 Pages Posted: 7 Dec 2020

See all articles by Mikel Bedayo

Mikel Bedayo

Catholic University of Louvain (UCL)

Gabriel Jiménez

Banco de España

José-Luis Peydró

Catalan Institution of Research and Advanced Studies (ICREA)

Raquel Vegas Sánchez

Banco de España

Date Written: December 3, 2020

Abstract

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

Suggested Citation

Bedayo, Mikel and Jimenez, Gabriel and Peydró, José-Luis and Vegas Sánchez, Raquel, Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures (December 3, 2020). Banco de Espana Working Paper No. 2037, Available at SSRN: https://ssrn.com/abstract=3742006 or http://dx.doi.org/10.2139/ssrn.3742006

Mikel Bedayo (Contact Author)

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Gabriel Jimenez

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

José-Luis Peydró

Catalan Institution of Research and Advanced Studies (ICREA) ( email )

P/ Lluis Companys 23
Barcelona, 08010
Spain

Raquel Vegas Sánchez

Banco de España ( email )

Calle Alcala, 48
Madrid, 28014
Spain

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