Loan Level Research Articles

The U.S. Syndicated Loan Market: Matching Data

We introduce a new software package for determining linkages between datasets without common identifiers. We apply these methods to three datasets commonly used in academic research on syndicated lending: Refinitiv LPC DealScan, the Shared National Credit Database, and S&P Global Market Intelligence Compustat. We benchmark the results of our match using results from the literature and previously matched files that are publicly available. We find that the company level matching is enhanced by careful cleaning of the data and considering hierarchical relationships. For loan level matching, a tailored approach based on a good understanding of the data can be better in certain dimensions than a more pure machine learning approach. The R package for the company level match can be found on Github.

Risk-weighted capital requirements and portfolio rebalancing

Abstract We use a 2013 Norwegian policy reform to study how banks react to higher capital requirements and how these adjustments transmit to the real economy. Using bank balance sheet data, we document that banks raise capital ratios by reducing risk-weighted assets. Most of the reduction in risk-weighted assets is accounted for by a reduction in average risk weights. Consistent with this reduction in risk, we document a substantial decline in credit supply to the corporate sector relative to the household sector. We also show that banks react to higher requirements by increasing interest rates, consistent with the reduction in corporate credit growth being supply driven. Using administrative loan level tax data, we document a reduction in lending on the firm level. This is robust to controlling for firm fixed effects, thereby accounting for potential firm-bank matching. Finally, we find that the reduction in bank lending has a negative impact on firm employment growth and that this effect is driven by small firms.

Impacts of Ownership Balance and Nonexecutive Directors on Bank Performance and Risk Taking: Evidence from City Commercial Banks in China

ABSTRACTThis paper investigates the impacts of nongovernmental stake, ownership balance, and nonexecutive directors on bank performance and risk taking in city commercial banks (CCBs) in China. We find that ownership balance can improve CCBs’ financial performance and reduce their bankruptcy risk as well as nonperforming loan level. Nonexecutive directors can help reduce bankruptcy risk, but have no significant effect on performance or nonperforming loans. The impacts of ownership balance and nonexecutive directors become more prominent when the nongovernmental stake is relatively high, suggesting that mixed ownership reform can promote bank performance and risk control via these two avenues.

Securitization and Screening Incentives: Evidence from Mortgage Processing Time

We test whether lenders' screening incentives weaken when faced with the possibility of loan sales. We adopt a new measure of lending standards, mortgage application processing time at the loan level, and use the collapse of the non-agency mortgage-backed securities issuance market as a natural experiment. The event significantly reduced liquidity for non-conforming loans, but had little impact on conforming loans. Following the collapse, lenders spent significantly more time screening applications for loans larger than the conforming loan limits than those below. The processing time gap widened more for banks with lower capital, greater involvement in the originate-to-distribute model, and larger assets.

Bank Capital and Risk Taking: A Loan Level Analysis

Does high leverage incentivize banks to systematically originate and hold riskier loans? I construct a novel data set consisting of 3 million small business and home mortgage loans, matched to the specific banks that originated them and verified to be held on bank portfolios, rather than sold. I measure the capital ratio (the inverse of the leverage ratio, defined as equity divided by asset value) for each bank at the time of each loan’s origination. After controlling for both bank and time fixed effects, a one point increase in Tier 1 capital ratios (e.g. from 12% to 13%) is associated with a 4.9% decrease in the default risk of mortgage loans held on portfolio (from a mean foreclosure rate of 4.3% to 4.1% for loans originated between 2003 and 2012). When considering the average capital of banks in US counties between 2003 and 2006, a one point increase in Tier 1 capital ratios is associated with a 4.4% reduction in foreclosures between 2007 and 2012. These results are robust to an instrumental variables strategy for predicting bank capital, a wide range of measures of bank capital, different types of banks, types of loans, and time periods.

Collateral Misreporting in the RMBS Market

Securitized mortgage appraisals routinely target pre-specified valuations, 45% of purchase loan appraisals exactly equal purchase prices, and appraisals virtually never fall below purchase prices. As a result, appraisals exceed automated valuation model (AVM) valuations 60% of the time and are 5% higher than AVM valuations on average. High appraisals and indicators of appraisal targeting predict loan delinquency and RMBS losses and are priced at the loan level through higher interest rates, but have essentially no impact on RMBS pricing. Selection bias simulations and unfunded loan application appraisals indicate that high appraisals are intentional. The extent to which appraisals exceed AVM valuations varies across loan officers, mortgage brokers, and appraisers; and high appraisals are associated with more repeat business for appraisers, potentially incentivizing appraisers to inflate their appraisals.

Enhancing Loan Quality Through Transparency: Evidence from the European Central Bank Loan Level Reporting Initiative

ABSTRACTWe explore whether transparency in banks’ securitization activities enhances loan quality. We take advantage of a novel disclosure initiative introduced by the European Central Bank, which requires, as of January 2013, banks that use their asset‐backed securities as collateral for repo financing to report securitized loan characteristics and performance in a standardized format. We find that securitized loans originated under the transparency regime are of better quality with a lower default probability, a lower delinquent amount, fewer days in delinquency, and lower losses upon default. Additionally, banks with more intensive loan level information collection and those operating under stronger market discipline experience greater improvement in their loan quality under the new reporting standards. Overall, we demonstrate that greater transparency has real effects by incentivizing banks to improve their credit practices.

所有权性质、资本结构与企业涉足房地产绩效

本文选取了2001-2014年间的244家多元化经营涉足房地产领域的非房地产企业作为研究样本，实证检验了所有权性质和资本结构对这些企业涉房绩效的影响。结果发现：国有企业的涉房绩效低于民营企业，国有企业在房地产行业的优势在企业涉房的短期中并没有表现出来；银行借款水平和企业涉房绩效呈负相关关系，商业信用与企业涉房绩效呈正相关关系。由于房地产项目融资主要依赖银行借款，非房地产公司在进入房地产行业时，高银行借款水平不利于企业对房地产项目的经营，存在“挤出效应”，对企业的绩效产生负方向的影响，而商业信用主要对企业产生“治理效应”和“信号传递效应”，对企业涉房绩效产生正向影响。 This article selected 244 non-real-estate enterprises which involved into real estate during 2001 to 2014 as the research sample, and tested the relationship between the ownership nature, capital structure and the performance of the enterprises involved in real estate. The conclusion is that: the performance of the state-owned enterprises involved in real estate is lower than private enterprises, bank loan has a negative correlation with the performance of the enterprises involved in real estate, business credit has a positive correlation with the performance of the enterprises involved in real estate. A high bank loan level has crowding-out effect on the performance of the enterprises involved in real estate, business credit effects the performance of the enterprises involved in real estate by the effect of governance and signaling effect.

Does the Policy Lending of the Government Financial Institution Mitigate the Credit Crunch? Evidence from the Loan Level Data in Japan

Using the data of individual loan contracts extended by the government owned Japan Finance Corporation for Small and Medium Enterprise (JASME), we examine whether the JASME’s lending from December 1997 thorough March 1999 mitigated the credit crunch. We find that on average the JASME offset more than a quarter of reduction in lending by a firm’s main bank due to poor capital adequacy. We further find that the effect of JASME’s loans on a firm’s performance is negative in a few years after loans are made but this negative effect dissipates afterward.

Determinants of loan demand in agriculture: empirical evidence from Germany

PurposeThe purpose of this paper is to empirically investigate the influencing factors of loan demand in agriculture. With the structural changes that agriculture is undergoing and the accordingly higher financing requirements and volumes, the analysis of loan demand in agriculture is of particular interest.Design/methodology/approachDetailed actual loan data at farm level, which is provided by a major German development bank for the agricultural sector, is used for the analysis. The data set covers the period from 2010 to 2014 and consists of 68,430 observations. Due to the data structure, an ordinary least square regression is conducted with the loan amount as the dependent variable. Many explanatory variables are included, such as the interest rate, the intended use of the loan, grace periods, the gross value added (GVA) and the business climate index for agriculture.FindingsAmongst others, the authors find that interest rate, GVA, grace periods and farmers’ business expectations have significant effects on the loan demand in agriculture. According to the results, the interest rate has a significant negative effect, whereas the granted grace periods, the GVA in agriculture and farmers’ business expectations have significant positive effects on the loan demand.Originality/valueThis paper investigates the determinants of loan demand in agriculture in a developed country by using unique and comprehensive data at loan and farm level. Amongst others, elasticities of loan demand in agriculture are determined.

Credit conditions in a boom and bust property market: Insights for macro-prudential policy

Abstract The substantial role played by greater credit provision in the international house price boom between 1995 and 2007 has lead to an increase in the use of macro-prudential measures as a means of preventing future credit bubbles. Calibration of these measures can prove difficult, however, given the relative ‘newness’ of the macro-prudential field and the limited experience with the use of these measures. Micro-loan level data can contribute to this debate by providing detail on how these measures tend to evolve across different buyer types and at different points in the business cycle. This paper uses a sample of 400,000 loans to assess the evolution of mortgage credit conditions across borrower groups in Ireland during the 2000s. The Irish case is particularly interesting given the severity of its housing boom and bust during this period. Furthermore, controlling for demand-side factors, we use the granular loan level data to provide estimates of an index of mortgage credit availability over the same period for the Irish mortgage market.

Taxing Bank Leverage: The Effects on Bank Capital Structure, Credit Supply and Risk-Taking

We explore the effect of tax reforms that decrease the cost of equity on bank lending. In 2000 and 2006, Italy and Belgium, respectively, introduced an allowance for corporate equity so that both firms and banks could deduct a notional interest on their equity from their taxable income. Because local firms were also affected by these reforms, we employ loan level data from a credit register in a third-country, i.e., Germany, to better identify the differential impact on lending by banks that were 'treated' by these tax reforms versus a control group of banks that were not. We find that the decrease in the cost of equity leads banks to raise their equity ratio, and to concurrently expand their balance sheet by increasing the amount of credit supplied in Germany. Conversely, the reversal of these reforms leads to a decrease in lending.

Spillover effects of continuous forbearance mortgages

This paper examines the potential market impacts of continuous forbearance mortgages (CFM). This mortgage design embeds an insurance contract at origination that reduces the interest bearing balance to the smaller of the unpaid balance and an estimate of the current home value in exchange for an additional premium in the mortgage note rate. Thus the CFM mortgage payment is reduced in periods in which the estimated home value falls below the unpaid balance and is reduced fractionally based on the ratio of home value to loan balance. We consider a counterfactual in which all U.S. mortgages had this CFM feature at the start of 2006 and estimate the mortgage payment savings to borrowers at a loan level. Estimated mortgage payment savings are then used to estimate the effect on mortgage default. At the aggregate level, the sum of the mortgage payment savings at the state level is used to estimate potential impacts to regional employment.

Spillover Effects of Continuous Forbearance Mortgages

This paper examines the potential market impacts of continuous forbearance mortgages (CFM). This mortgage design embeds an insurance contract at origination that reduces the interest bearing balance to the smaller of the unpaid balance and an estimate of the current home value in exchange for an additional premium in the mortgage note rate. Thus the CFM mortgage payment is reduced in periods in which the estimated home value falls below the unpaid balance and is reduced fractionally based on the ratio of home value to loan balance. We consider a counterfactual in which all U.S. mortgages had this CFM feature at the start of 2006 and estimate the mortgage payment savings to borrowers at a loan level. Estimated mortgage payment savings are then used to estimate the effect on mortgage default. At the aggregate level, the sum of the mortgage payment savings at the state level is used to estimate potential impacts to regional employment.

Does the Policy Lending of the Government Financial Institution Mitigate the Credit Crunch? Evidence from the Loan Level Data in Japan

Using the contract level data, we find that the lending by Japan Finance Corporation for Small and Medium Enterprise (JASME), a state owned lending institution, mitigated a firm’s loss of borrowing from its main bank during the credit crunch. We further find that the JASME’s lending instrumented by the main bank’s lending supply growth as explained by the bank’s capital adequacy, which captures the lending to mitigate the loss of borrowing, had negative effects on the investment rate and that the JASME’s lending had an weak effect to mitigate the cash sensitivity of cash that captures the firm’s financial constraint.

Monetary Policy and Global Banking

Multinational banks use their global internal capital market to respond to local shocks. However, what distinguishes global banks is not only their geographical diversification, but also their funding model: the primary source of stable funding for banks is denominated in their domestic currency. When global banks use their global balance sheets to smooth out local shocks, they need to hedge their foreign exchange exposure. In times when there is limited capital to take the other side of the hedging transaction, this will attenuate the use of internal markets to smooth out local shocks. In this context, tightening monetary policy in the lender’s home country can actually reduce pressure on the swap market, making lending abroad more attractive. Using the changes in interest paid on excess reserves by monetary authorities in six major currency areas between 2000 and 2015, we show that multinational banks reduce their reserve holdings and increase their lending abroad in response to a tightening of domestic monetary policy. This result is robust to the inclusion of a narrow set of fixed effects, and holds at the loan level. Consistent with the proposed mechanism, we show that global banks’ cross-border movement of capital is associated with an increase in foreign exchange swapping activity and its rising cost, as manifested in violations of covered interest rate parity.

Decomposition of Debt and the Road to REIT Returns

Analyzing a hand-collected loan level database of heterogeneous REIT borrowings and controlling for REIT risk and loan collateral as well as endogeneity of access to public debt markets, we find that mortgage loans include a rate premium to compensate banks for monitoring. Access to public debt markets raises financing costs, inconsistent with a bank hold-up problem for REITs. However, non-monitored debt financing costs are reduced when bank lenders and equity analysts monitor REIT management. Equity alpha reflects positive abnormal returns from equity analyst monitoring, but not from costly bank monitoring. Equity gains from analyst monitoring are not found during recessions.

Enhancing Loan Quality Through Transparency: Evidence from the European Central Bank Loan Level Reporting Initiative

We explore whether transparency in banks’ securitization activities enhances loan quality. We take advantage of a novel disclosure initiative introduced by the European Central Bank (ECB), which requires, as of January 2013, banks that use their asset-backed securities (ABS) as collateral for repurchase (repo) financing to report securitized loan characteristics and performance in a standardized format. We find that securitized loans originated under the transparency regime are of better quality with a lower default probability, a lower delinquent amount, fewer days in delinquency and lower losses upon default. Additionally, banks with more intensive loan level information collection and those operating under stronger market discipline experience greater improvement in their loan quality under the new reporting standards. We show that our results cannot be attributed to concurrent changes in the securitized loan market dynamics, banks’ strategic reporting incentives, regulatory initiatives or higher monitoring pressures in different European countries. Overall, we demonstrate that greater transparency has real effects by incentivizing banks to improve their credit practices.

Effects of the Ability to Repay and Qualified Mortgage Rules on the Mortgage Market

In this note, we use recently released loan level data collected under the Home Mortgage Disclosure Act (HMDA) to examine how the new ability-to-repay (ATR) rules may have affected mortgage lending activity in 2014.

Intervention of Regulatory Bailouts in Loan Partnerships: Evidence of Tarp's Effect on Syndicated Loan Structures

This paper is the first to assess the Troubled Asset Relief Program (TARP) at loan level by looking at the structure of loan syndicates. While the purpose of TARP was to stimulate the flow of credit during the economic downturn, the low cost of capital could have functioned as a double-edged sword by imprudently increasing lenders’ credit risk-appetite. Our analysis reveals two important findings: first we find that while TARP provided low cost funding during the crisis, it effectively prevented moral hazard by its participants as evidenced by the syndicated loans’ more diversified structures. This result is evident in three different measures of syndicated loan’s structure. Second, lender-loan level analyses suggest that TARP’s impact varied across lender groups. Although we find that TARP diversified syndicated loans’ structure in general, it also increased loan concentration among lead arrangers. This result is robust to propensity score matching, instrument variable analysis, alternate variable measures and subsample analysis. These findings support the agency hypothesis by documenting a greater share of lead arranger commitment during a period of time when credit monitoring was strengthened.