Enhancing loan quality through transparency: evidence from the European Central Bank loan level reporting initiative

Ertan, A, Loumioti, M and Wittenberg-Moerman, R (2017) Enhancing loan quality through transparency: evidence from the European Central Bank loan level reporting initiative. Journal of Accounting Research, 55 (4). pp. 877-918. ISSN 0021-8456 OPEN ACCESS

Abstract

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, 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.

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Item Type: Article
Subject Areas: Accounting
Additional Information: © 2017 University of Chicago on behalf of the Accounting Research Center. This is the peer reviewed version of the following article: Ertan, A. , Loumioti, M. and Wittenberg-Moerman, R. (2017), Enhancing Loan Quality Through Transparency: Evidence from the European Central Bank Loan Level Reporting Initiative. Journal of Accounting Research, 55: 877-91, which has been published in final form at https://doi.org/10.1111/1475-679X.12162. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Subjects: S > Securities
Date Deposited: 21 Feb 2017 17:33
Last Modified: 16 Sep 2019 11:36
URI: http://lbsresearch.london.edu/id/eprint/791
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