Loan Officer Authority and Small Business Lending : Evidence from a Survey

Using a unique dataset based on the Bank of Italy's organizational survey, we find that – after having controlled for bank size – loan officers' authority has a key role in explaining bank specialization in small business lending. In particular, banks that delegate more decision-making power to their loan officers are more willing to lend to small firms than other banks. We use several proxies for measuring loan officers' authority: loan officers' discretion in loan approval and in setting interest rates, the amount of money up to which they are allowed to lend autonomously, their turnover, their compensation schemes, and the kind of information (soft versus hard information) used both for screening and monitoring purposes