What drives discretion in bank lending? Some evidence and a link to private information

Gene Ambrocio and Iftekhar Hasan

Journal of Banking & Finance, 2019, vol. 106, issue C, 323-340

Abstract: We assess the extent to which discretion, unexplained variations in the terms of a loan contract, has varied across time and lending institutions and show that part of this discretion is due to private information that lenders have on their borrowers. We find that discretion is lower for secured loans and loans granted by a larger group of lenders, and is larger when the lenders are larger and more profitable. Over time, discretion is also lower around recessions although the private information content is higher. The results suggest that bank discretionary and private information acquisition behavior may be important features of the credit cycle.

Keywords: Bank discretion; Credit screening; Private information; Syndicated loans (search for similar items in EconPapers)
JEL-codes: D82 G14 G21 G28 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:106:y:2019:i:c:p:323-340

DOI: 10.1016/j.jbankfin.2019.07.006

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