Relationship and Transaction Lending in a Crisis

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

No 417, BIS Working Papers from Bank for International Settlements

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, but offer continuation-lending at more favorable 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 relationship and transaction-banks 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 favorable 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)
Pages: 68 pages
Date: 2013-07
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (57)

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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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