Credit And Information In Universal Banking

The internal aspects of bank lending, information production, and interaction between debtor and bank lending officers are still a black box to banking theory. To achieve some empirical insight into these aspects of financial intermediation, I analyze the credit files of six lending relationships between a German universal bank and medium sized firms. If no crisis occurs in these lending relationships, bank monitoring uses mainly cheap, retrospective, internal data. Most of the data the bank uses is not publicly available. This finding supports the concept of banks as delegated monitors that have an informational advantage over capital markets. I also observe signalling and monitoring behavior of the debtor, which indicates that the bank also acts as delegated contractor. Bank lending officers seem to receive information about their debtors not only from monitoring, but also from the debtors’ behavior. Although my results are obtained from a clinical, non-representative study, they nevertheless provide some empirical evidence on the potential relevance of theoretical concepts of bank lending.