Data and code for: Bank Loan Monitoring, Distance and Delegation

Principal Investigator(s): View help for Principal Investigator(s) Amanda Rae Heitz, Federal Deposit Insurance Corporation; Christopher Martin, Federal Deposit Insurance Corporation; Alexander Ufier, Federal Deposit Insurance Corporation

Version: View help for Version V1

Name	File Type	Size	Last Modified
Section 1 Distance Code			04/24/2023 09:06:AM
Section 2 Code			04/24/2023 09:06:AM
Section 2 Data			04/24/2023 09:06:AM
README.pdf	application/pdf	592.4 KB	04/28/2023 09:10:AM

Project Citation:

Heitz, Amanda Rae, Martin, Christopher, and Ufier, Alexander. Data and code for: Bank Loan Monitoring, Distance and Delegation. Nashville, TN: American Economic Association [publisher], 2023. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2023-05-01. https://doi.org/10.3886/E188163V1

Project Description

Summary: A body of literature shows that lenders grant less credit to borrowers who are geographically farther away. This literature assumes that physical distance increases the costs for the lender to monitor borrowers, thereby increasing informational frictions. However, we are aware of no studies that directly test this assumption. We use a proprietary database of detailed loan-level data and on-site inspection reports for a bank’s portfolio of construction loans to examine the relationship between distance and monitoring activity. We find that construction projects farther from the nearest bank branch are more intensely monitored by third-party inspectors contracted by the bank. We also find that projects farther from these third-party inspectors are subject to less intense monitoring. These results are consistent with the prediction that distance increases the informational opacity of borrowers, but also suggest that banks can at least partially offset these frictions through the delegation of monitoring to closer inspectors.

Funding Sources: Federal Deposit Insurance Corporation; Tulane University

Scope of Project

Subject Terms: bank monitoring; financial crisis; construction loan; failed bank

JEL Classification:
      G01 Financial Crises
      G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
      G33 Bankruptcy; Liquidation
      G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth

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Published Versions

V1 [2023-05-01]

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