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Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures

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  • Bedayo, Mikel
  • Jiménez, Gabriel
  • Peydró, José-Luis
  • Vegas, Raquel

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 origination time involves more bank-level failures, even more than other lending conditions, consistent with lower screening.

Suggested Citation

  • Bedayo, Mikel & Jiménez, Gabriel & Peydró, José-Luis & Vegas, Raquel, 2021. "Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures," EconStor Preprints 225986, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:225986
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    1. van der Plaat, Mark & Spierdijk, Laura, 2020. "Recourse, asymmetric information, and credit risk over the business cycle," MPRA Paper 104718, University Library of Munich, Germany.

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    More about this item

    Keywords

    loan origination time; lending standards over the cycle; defaults; bank failures; screening;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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