“If You Don't Know Me by Now ...†Banks’ Private Information and Relationship Length

Does private information banks generate about their corporate borrowers deepen and change in nature over time, and if so, how? Exploiting the comprehensive Federal Reserve’s supervisory dataset, we distinguish two private information dimensions embedded in internal credit ratings: depth and direction (better or worse). After showing that depth and direction are associated with loan terms, we document that longer firm-bank relationships deepen private information often strongly nonlinear, in both directions, and peaking at about five years. Learning effects are particularly salient for smaller and leveraged firms, smaller, leveraged, and illiquid banks, at longer firm-bank distances, and during non-COVID times.