N°24-41: Pay Transparency, Bank and Non-Bank Employment, and Loan Performance

How does pay transparency affect the granting of credit by loan officers? We answer this question by studying the impact of the introduction of pay transparency laws across nine U.S. states with both individualand bank level data. Pay transparency laws spur bank employees, in particular loan officers, to leave for non-banks. Wages are traditionally higher there, and banks respond to these additional employee departures by increasing their own employee compensation. This catch-up in bank wages and the potential new hiring of employees then ostensibly leads to more bank risk-taking and lower bank loan performance.