N°23-01: "If You Don't Know Me by Now ..." Information Collection by Banks in Lending to Private Firms

What constitutes banks’ information collection of private firms? How does it deepen and change in nature over time? Exploiting a comprehensive Federal Reserve’s supervisory dataset, we first extract three dimensions of private information from banks’ internal credit ratings—depth and better/worse assessments—with all three dimensions related to various loan terms. We then document how private information evolves as firm-bank relationships lengthen, with effects non linear and peaking after five years. Learning varies by bank and firm characteristics too, with effects particularly salient at longer bank-firm distances, during non-COVID times, for smaller, leveraged, illiquid banks, or for smaller, leveraged firms.