Financial incentives and loan officer behavior

  • In this paper, we investigate the implications of providing loan officers with a compensation structure that rewards loan volume and penalizes poor performance. We study detailed transactional information of more than 45,000 loans issued by 240 loan officers of a large commercial bank in Europe. We find that when the performance of their portfolio deteriorates, loan officers shift their efforts towards monitoring poorly-performing borrowers and issue fewer loans. However, these new loans are of above-average quality, which suggests that loan officers have a pecking order and process loans only for the very best clients when they are under time constraints.

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Author:Patrick BehrGND, Alejandro Drexler, Reint GroppGND, André GüttlerGND
Document Type:Report
Year of Completion:2013
Year of first Publication:2013
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/11/25
Tag:incentives; loan officer; loan origination; monitoring; screening
Issue:this version: Nov 5, 2013
Page Number:42
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht