Checking Accounts and Bank Monitoring

Loretta Mester, Leonard Nakamura and Micheline Renault

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: Do checking accounts help banks monitor borrowers? A borrower’s checking account provides a bank with exclusive access to a continuous stream of borrower data, namely, the borrower’s checking account balances at the bank. Using a unique set of data that includes monthly and annual information on small-business borrowers at an anonymous Canadian bank, we provide empirical evidence that checking account information helps the bank to monitor commercial borrowers. We show the direct mechanism through which banks can use this information in monitoring. Our results provide empirical support for the notion of Black (Jrl of Fin Econ, 1975) and Fama (Jrl of Mon Econ, 1985) that, because of their role in the payments system, banks are “special” monitors.

Date: 2002-07
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Checking accounts and bank monitoring (2001)
Working Paper: Checking accounts and bank monitoring (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:wop:pennin:99-02

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