Hardening Soft Information: How Far Has Technology Taken Us?

We explore the boundaries of soft information by investigating whether soft information can be "hardened" in commercial loan underwriting such that it can be communicated across the hierarchical layers of a large bank. We use data from a large European bank containing granular loan-level information on the credit score building process and loan approval decisions. Like other banks, soft information is injected into the scoring process at several points. We find that credit scoring technology does not eliminate the barriers to soft information communication within a banking organization. We also find that firms applying to distantly located branches receive a lower amount of credit than firms with the same score applying to branches closer to the bank office with final approval authority, especially if the final score incorporates positive soft information. Our findings confirm the persistence of spatially-based organizational frictions even in the context of a modern credit-scoring based lending technology.