Relationship and transaction lending in a crisis

Patrick Bolton, Xavier Freixas (), Leonardo Gambacorta and Paolo Emilio Mistrulli

No 917, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We study how relationship lending and transaction lending vary over the business cycle. We develop a model in which relationship banks gather information on their borrowers, which allows them to provide loans for profitable firms during a crisis. Due to the services they provide, operating costs of relationship banks are higher than those of transaction banks. In our model, where relationship banks compete with transaction banks, a key result is that relationship banks charge a higher intermediation spread in normal times, offering continuation-lending at more favourable terms than transaction banks to profitable firms in a crisis. Using detailed credit register information for Italian banks before and after the Lehman Brothers� default, we are able to study how both types of bank responded to the crisis and we test existing theories of relationship banking. Our empirical analysis confirms the basic prediction of the model that relationship banks charged a higher spread before the crisis, offered more favourable continuation-lending terms in response to the crisis, and suffered fewer defaults, thus confirming the informational advantage of relationship banking.

Keywords: relationship banking; transaction banking; crisis (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Date: 2013-07
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (55)

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Related works:
Journal Article: Relationship and Transaction Lending in a Crisis (2016)
Working Paper: Relationship and Transaction Lending in a Crisis (2015)
Working Paper: Relationship and Transaction Lending in a Crisis (2013)
Working Paper: Relationship and Transaction Lending in a Crisis (2013)
Working Paper: Relationship and Transaction Lending in a Crisis (2013)
Working Paper: Relationship and transaction lending in a crisis (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_917_13

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