Working Paper: CEPR ID: DP15445
Authors: Jos Luis Peydr; Gabriel Jimnez; Mikel Bedayo; Raquel Vegas
Abstract: We show that loan origination time is key for bank credit standards, defaults and failures over the cycle. We use the credit register from Spain, with the time of a loan application and its granting. When VIX is lower, banks shorten loan origination time, especially to less-capitalized firms.Bank moral hazard incentives (competition and capital) are crucial drivers. Moreover, shorter (loan-level) origination time implies higher ex-post defaults, especially for less-capitalized firms in areas with higher bank competition or when VIX is lower. Finally, shorter pre-crisis originationtime involves more bank-level failures, even more than other lending conditions, consistent with lower screening.
Keywords: loan origination time; lending standards; defaults; bank failures; screening
JEL Codes: G01; G21; G28; E44; E51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| VIX lower (G19) | shorter loan origination times (G21) |
| shorter loan origination times (G21) | higher ex-post loan defaults (G33) |
| higher bank competition (G21) | effects of shorter origination times on defaults (G33) |
| less pre-crisis loan origination time (G21) | higher likelihood of bank failures during financial crisis (F65) |
| shorter origination time (C41) | increased defaults at the loan level (G33) |
| shorter origination time (C41) | higher bank distress events (F65) |
| moral hazard incentives and competition (D82) | increased defaults and bank failures (F65) |