Financial Contagion and Vulnerability of Asian Financial

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					Loan officer incentives and the
limits of hard information
Tobias Berg, Manju Puri, and Jörg Rocholl

             A Discussion

          Rajesh Chakrabarti

             CAFRAL, June 19, 2012
 “The question” and “The answer”

n Question:
  n Is banker discretion the only source of unsafe
  n Does exclusive reliance on “hard” info immunize
    loans to loan officer biases?
n Answer:
   n An emphatic NO
  n Loan officers try their best to fudge “objective”
    numbers to get application scores across the
     Broad observations

n Simple, Direct, Focused, Easy-to-Understand paper
n The clincher obviously is the dataset
n That does not make the story any less appealing
n Methodically confirms a widely-held suspicion of
  loan-pushing (probably at the RBI too)
n Case argued flawlessly
n Proven “beyond reasonable doubt”
  Further ahead
nUp to the reader to generalize the
 evidence to all banks all over the world
nIs it just the loan officer or is there
 connivance of higher-ups?
  nCan we compare loan officer trial rates across
   different branches of the organization
nEthics and …politicians, lawyers,
    The problem and the solutions
nThe problem
  nFudging does seem to lead to higher default
nSolutions (outside the paper’s ambit)
  nAllow fewer trials – may yield opposite results
  nPolicing: Periodic audit of hard inputs reported
  nIncentives: Incorporating penalties for loan
   portfolio default rates
   Message for Regulators and
   Policy think-tanks
nReal great example of how detailed data
 can be used to provide conclusive evidence
 for policy design and use
nGreat case for making data available to
 researchers (without identity disclosure that
 would affect behavior itself)
nMost appropriate for CAFRAL/RBI 
Thank you

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