The harmonization of lending standards within banks through mandated loan-level transparency

Jung Koo Kang, Maria Loumioti and Regina Wittenberg-Moerman

Journal of Accounting and Economics, 2021, vol. 72, issue 1

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 (search for similar items in EconPapers)
JEL-codes: D83 G21 M41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:72:y:2021:i:1:s016541012100001x

DOI: 10.1016/j.jacceco.2021.101386

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