microeconometría bancaria

8/19/2019 microeconometría bancaria

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Chapter 4

Lender – Borrower Relationship


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Rules versus Discretion

Heteroscedastic Model

Cerqueiro, Der!se " #nena $%&' 2(11)


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+ho Maes the Credit Decisions-

.erson or Machine Behind the Des-

/re credit decisions identical-


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'0ainea set o twins that applies or a an loan

• ' twins are ull! identical in all respects $sa0e se,

proession, street address, etc)• 5he applications are 0ade online throuh the sa0e

auto0ated s!ste0

the twins should receive the sa0e loan rate

as oth the inputs in the credit application

and the 0odels processin these inputs

are identical 6


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7ow rin in a loan oicer

• 5wins 0a! not et the sa0e loan rate +h!-• 8tra input9 the loan oicer:s ;ud0ent

– eperience

– arainin ailit!

– uncertaint! reardin the costu0er:s prospects – sot inor0ation

– eccentricities• the color o the applicant:s ;acet

• the loan oicer:s 0ood

– weather conditions and


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>Rules? vs >Discretion?

Loan Rates

“Discretion”“Rules”


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Loan .ricin 5echnoloies

“Rules”

“Discretion”

Weight of ObjectiveInformation

Standardization

Level

Min.

Max.


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>Rules? versus >Discretion?

• >Rules? – a Co0puter that uses9

– / standardied pricin 0odel

– #nl! o;ective criteria as inputs

⇒ Predictable loan rates

• >Discretion? – a Loan #icer who 0a!9

– /dd su;ective ;ude0ents as inputs

– Co0ine dierent inputs in an! su;ective wa!

– Mae pricin 0istaes

⇒ Hard-to-predict loan rates


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5his .aper

• ses a heteroscedastic reression 0odel toassess the deter0inants o the i0portanceo >Rules? and >Discretion? on contractedloan rates

– Loan rates should relect so0e latentco0ination o o;ective $>rules?) and su;ective$>discretion?) criteria

–

Heteroscedastic 0odel anal!es how thepredictive power o a linear loanEpricin 0odelchanes with iven ir0, 0aret and loancharacteristics


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Main Results

• 5he i0portance o >discretion?

– decreases with9• Loan and ir0 sie

• .ri0e rate

– increases with9• Borrower opaqueness $e, poor credit histor!)

• Distance etween ir0 and lender

• /e o ir0:s owner

• >Discretion? has decreased over the last 1* !ears ors0all loans to opaque ir0s


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'+h! Loan Rates /re Fo Hard to .redict-

Loan .ricin Models and R2

Ftud! R2 G ar G #s

.etersen " Ra;an $JF 14) 1*I 32 1,3A

Berer " dell $JB 1*) 1(I 22 3@1

Bric " .alia $JFI 2((@) 11I A( @66

Der!se " #nena $JF 2((*) 22I A3 1*,(44


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' +ell, 't Depends

Heteroeneit! in Loan .ricin Models

• Fa0ple split reressions $! loan sie) – &ro0 Der!se " #nena $JF 2((*)

– Fpeciication9 Loan Rate = Controls J Residual

Loan Fie $K) G #s R2

F0all $ *,((() *,A*( ((1

Lare $ *(,((() 1,A*( (6@


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5his Crisis-

• Lower RN on acceptance 0odel or F supri0eversus pri0e loans

– Dell:/riccia, 'an " Laeven $%MCB &orth)


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'' Methodolo!8cono0etric Model

• Heteroscedastic reression 0odel9

Mean equation9 !i = OPQi J ui

ariance equation9 i2= ep$STUi)

• 8tre0e cases9

–

>Rules?9 R2

o 0ean equation V 1 – >Discretion?9 R2 o 0ean equation V (

• Model esti0ated ! ML8 $nor0alit! assu0ption)


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'' +hat Does 8ach 8quation 5ell s-

L o a n R a t e

Age of the Firm

Pooling

Equilibrium

Case 1 – No Price Discrimination


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'' +hat Does 8ach 8quation 5ell s-

L o a n R a t e

Age of the Firm

Loan Officer IncreasinglyLikes Smile of Owner

Loan Officer Increasingly

Dislikes Smile of Owner

Case 2 – Price Discrimination


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'' Mean 8quation

L o a n R a t e

Age of the Firm

More “Good Smile” Owners

in the Pool

Case 2 – Perfect Discrimination





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'' ariance 8quation

L o a n R a t e

Age of the Firm

Case 2 – Perfect Discrimination





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'' H!pothetical 8a0ple

L o a n R a t e

Loan Size


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L o a n R a t e

Loan Size

“Rules”


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L o a n R a t e

Loan Size

“Discretion”

“Rules”


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L o a n R a t e

Loan Size

“Discretion”

“Rules”


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'' 'nterpretation o O and S

L o a n R a t e

Loan Size

β


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'' 5echnical Co00ent

Parameters in mean (β) and variance (γ) equations

are uncorrelated

si0ilar to the consistenc! o the coeicientsein unaected in a linear reression 0odel

! heteroscedasticit! in the error ter0


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'' ' Loan Fie 7ot in Mean 8quation-

L o a n R a t e

Loan Size

“β=0”

γ


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''' Data

• Datasets used9

– 13, 1A and 2((3 FFB&• /llows or a te0poral anal!sis o loan pricin

practices


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''' ariales in Mean 8quation

• 7u0er o predictors9 62, includin9 – Cost o capital

– Loan characteristics

– &ir0 < #wner characteristics• /ccountin inor0ation

• Credit histor!

– Relationship characteristics

– Co0petition < Location 0easures

– #ther controls9 F'C codes, reions, lender t!pe

• R2 o 0ean equation9 2*I

• 7ot particularl! low " not due to >low? nu0er o reressors


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''' ariales in Mean 8quation

• 7u0er o predictors9 62, includin9 – Cost o capital

– Loan characteristics

– &ir0 < #wner characteristics• /ccountin inor0ation

• Credit histor!

– Relationship characteristics

– Co0petition < Location 0easures

– #ther controls9 F'C codes, reions, lender t!pe

• R2 o 0ean equation9 2*I

• 7ot particularl! low " not due to >low? nu0er o reressors


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''' #0itted ariales $in Mean 8quation)-W Does ariance 8quation Capture Discretion W-

• FFB&9 include >all? availale variales in 0eanequation

– #;ective9 .redict loan rates as accuratel! as

possile• Relevance o inor0ation9 'nor0ation predicts AAI o

accept


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• >Belian sa0ple?

• sed in Der!se " van Ca!seele $JFI 2(((), Der!se "#nena $JF 2((*, %&' 2((@), Der!se, Laeven "

#nena $RoF 2(()• Loan portolio o a lare an $over 1*,((( loans)

• Contains all information “observable to the bank ”

• 8nsures that >discretion? relates to pricin decisions0ade ! the loan officer X

• Results are surprisinl! si0ilar to FFB&

''' #0itted ariales $in Mean 8quation)-

W Does ariance 8quation Capture Discretion W-


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''' Roustness 5ests – Mean 8quation

• Model speciication

– 7onElinear ter0s9 squared, cued• /dd linearl! predicted loan rates squared and

cued $ la Ra0se! R8F85)» Reression 8quation Fpeciication 8rror 5est

– Fplines9 all continuous variales in tenequall! spaced splines


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• /dd !un and Bradstreet "redit #core percentile

– 7ot pulicl! availale hence loan oicer 0a!not have it

• Fa0ple selection ias-

– .roit selection 0odel o rantin loan

• Drop all loan characteristics, add $oan amountrequested


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• Ban heteroeneit! – Conidential an inor0ation otained ro0 &ederal

Reserve BoardX• 1(( an sie du00ies $ied eects not possile)

– Branch heteroeneit! in Belian sa0ple• #ne an• $Fo0ewhat) dierent institutional settin

• %ointness o loan ter0s $Bric " .alia, JFI 2((@) – Drop loan a0ount, collateral, 0aturit! and t!pe

• &ull! ;ointl! with variance equation9 not so straihtorward


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''' ariales in ariance 8quation

• .arsi0onious speciications

– ariales 0otivated ! theoretical ideas• as 0uch as possile

• ad0ittedl! no structural testin

– Roust to 0an! additions < re0ovals o controlvariales in variance equation

• Re0e0er roustness to all alterations in 0ean equation


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''' ariales in ariance 8quation

>Discretion? a product o 0aret i0perections• 'nor0ation search costs Ftiler $JP% 161)• 'nor0ation as!00etries von 5hadden $FR$ 2((4), Ftiler $JP% 161),

Reinanu0 $JP% 1@), MacMinn $JP% 1A(), arian $ &%R 1A(), Ba!e and Moran

$ &%R 2((1) – &ir0 opaqueness .etersen " Ra;an $'J% 1*) – Ftrenth o ir0Ean relationship .etersen " Ra;an $JF 14), Berer

" dell $JB 1*)

– &ir0Ean distance Hauswald " Marque $RF#, 2((*)•

Co0petitive structure o anin 0arets – Maret concentration Hannan $JBF 11, RI 1@), .etersen " Ra;an

$'J% 1*)


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''' 'nor0ation Fearch Costs

• Borrowin ir0 wants 0ore inor0ation and to>price shop? i loan is lare or ea0ple

– More co0petition a0on possile lenderspossil! 0aes loan pricin 0oreho0oeneous

• ln$Loan /0ount)


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''' 'nor0ation /s!00etries 8ect o opacit! on discretion-

• .ositive9 variance o loan rates increasin unction ouncertaint! aout qualit! o pool o orrowers – Model si0ulations o von 5hadden $FR$ 2((4) <

Ra;an $JF 12) $as in Blac 2((6) – ariance o loan rates9

• decreases in averae repa!0ent proailit! in credit 0aret

• increases in dierence in repa!0ent proailit! etweenood and ad ir0s

• can*es nonE0onotonicall! in proportion o ood ir0s $1


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''' 'nor0ation /s!00etries 8ect o #pacit! on Discretion-

• 7eative9 Lenders 0a! tr! to avoid ivinawa! inor0ation ! pricin lonEti0e

orrowers too dierentiall! $Yan " Riddiouh,RF# 2((6)

• %+ ante9 Collateral, Minorit!, Corporation,Clean Record, 'RF .role0, and ln$Duration)

• %+ post 9 ln$Distance)


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''' Concentration " Fie o Marets

• .ossil! 0ore >discretion? in9

– 0ore concentrated anin 0arets $.etersenand Ra;an, 'J% 1*)

– larer anin 0arets9 reater diversit! ounderwritin procedures and ! hiher searchcosts $arian, &%R 1A()

• Concentrated and MF/


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8ect see0 ulti0atel!unaddressed e0pirical question

W

' R lt i 8 ti


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' Results o ariance 8quation$13 7FFB&)


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' Loan /0ount


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' Borrower #paqueness < Fwitchin Costs

Variable γ S.e. (γ)

Ln(Loan Amount) -0.27 *** 0.02

Loan is Secured (0/1) -0.18 ** 0.08

Firm is a Corporation (0/1) -0.24 *** 0.09

Ln(Age of the Firm’s Owner) 0.39 *** 0.13

Firm not Owned by Minority (0/1) -0.34 *** 0.13

Firm with Clean Legal Record (0/1) -0.25 *** 0.09

Firm with no IRS Problem -0.16 ** 0.07

Duration of Firm-Bank Relationship -0.12 ** 0.05Concentrated Banking Market (0/1) 0.10 0.08

Firm Located in MSA (0/1) 0.18 ** 0.09

Ln(Firm-Bank Distance) 0.10 *** 0.02

Number of observations 1,425

' . li ' ti t th &i


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' .ulic 'nor0ation aout the &ir09 /e o the #wner

' . i t ' ti t th &i


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' .rivate 'nor0ation aout the &ir09Duration o &ir0EBan Relationship


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' 8cono0ic Finiicance o Results

' Discontinuit! in Discretion-


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' Discontinuit! in Discretion-Deco0pose Continuous ariales

in 5hree $&ive) Fplines – Loan /0ount9 relectin search costs-

4@,((( K9 stronl! neative

32*,((( K9 0oderatel! neative

4@,((( K 32*,((( K9 no eect

– Duration o &ir0EBan Relationship

3 !ears9 neative

1( !ears9 neative

3 1( !ears9 positive

– Ln$&ir0EBan Distance)

2 0iles9 positive

–

Ln$/e o the &ir0:s #wner)all ositive

' / t i D i ti -


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' /s!00etric Deviations-

• / quantile $0edian) reression o Loan Rate on the set o

eplanator! variales used in the loanEpricin 0odel – Roust to sewness in the distriution o residuals

• &or ea0ple9 i positive deviations ro0 the true pricin 0odelare 0ore sieale than the neative ones, then a 0eanreression 0odel will underesti0ate positive deviations andoveresti0ate the neative ones

• Du00ies RipEo and Barain9 esti0ated disturance islarer or s0aller than one standard deviation aove orelow the sa0ple 0ean o the residuals $the esti0ated

value is 1@ p)

• 8sti0ate loit reressions o the variales RipEo andBarain on the sa0e set o variales we e0plo! in thevariance anal!sis


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' Has >Discretion? aried #ver 5i0e-

• 80pirical 5est9

– Mered sa0ples 13, 1A and 2((3 FFB&

– ariance equation9

lnZi [ = S1′Ui J S2t J S3′ZUi×t [

Table 5


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' >Discretion? Chaned #ver5i0e

Results9

– >Discretion? decreased or s0all loans to

opaque usinesses Berer, &ra0e " Miller $J,"B 2((*)

– More >discretion? in periods o hih liquidit!

$ie, low pri0e rate) Ra;an $%F, 2((6), %i0\ne, #nena, .e!dro " Faurina $8CM/&orth), 'oannidou, #nena " .e!dro $2(13)


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Conclusions

• Heteroscedastic 0odel identiies deter0inants ouneplained dispersion o loan rates $>discretion?)

• >Discretion? increases with – Borrower opaqueness $Fwitchin costs)

– .ulic inor0ation aout the ir0• /nd decreases in

– Loan sie $'nor0ation search costs)

– .ri0e Rate

• >Discretion? has decreased over the last 1* !ears ors0all loans to opaque ir0s


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Man! .ossile #ther /pplications

• W

Lie indin out what loan oicers actuall! do


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