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

What constitutes banks’ information on private firms, how does it deepen and change over time, and what else drives it? Exploiting a comprehensive Federal Reserve’s dataset, we extract three measures of private information from banks’ internal ratings—Depth, Optimism, and Pessimism—all three related to loan terms and performance. We then document that private learning peaks at bank firm relationships of about five years. Learning is also more pronounced at greater bank-firm distances, during non-COVID times, by smaller and less capitalized banks, and for larger and more leveraged firms, likely as incentives or ability to collect private information are then greater.