Composition, interpretation and memorisation of the idiosyncratic knowledge in social banking

Abstract

Idiosyncratic knowledge, defined as the internal knowledge produced by a bank on
each of its borrowers, is at the heart of the financial intermediation process. Nonetheless, the
way bank managers use information in the credit-granting process remains a black box in
the existing econometric studies. On the basis of a statistical textual analysis conducted on
prior-to-credit-committee notices of 52 credit files stemming from a social bank, our paper
offers three main contributions. First, we show that the social bank under scrutiny produces
a rich idiosyncratic knowledge mainly composed of soft information. Second, we reveal
how the qualitative and the quantitative dimensions of the idiosyncratic knowledge are
used when credit conditions are determined; hierarchy playing a key role in this process of
interpretation. Third, our results indicate that the bank relies on an information system as
well as on its agents’ cognitive abilities to memorise the idiosyncratic knowledge it produces.
In this respect, our research points out deficiencies in the bank’s organisational memory
and suggests some directions to remedy them.