Benefits of relationship banking: evidence from consumer credit markets

Sumit Agarwal, Souphala Chomsisengphet, Chunlin Liu and Nicholas Souleles

No WP-2010-05, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper empirically examines the benefits of relationship banking to banks, in the context of consumer credit markets. Using a unique panel dataset that contains comprehensive information about the relationships between a large bank and its credit card customers, we estimate the effects of relationship banking on the customers' default, attrition, and utilization behavior. We find that relationship accounts exhibit lower probabilities of default and attrition, and have higher utilization rates, compared to non-relationship accounts, ceteris paribus. Such effects become more pronounced with increases in various measures of the strength of the relationships, such as relationship breadth, depth, length, and proximity. Moreover, dynamic information about changes in the behavior of a customer?s other accounts at the bank, such as changes in checking and savings balances, helps predict and thus monitor the behavior of the credit card account over time. These results imply significant potential benefits of relationship banking to banks in the retail credit market.

Keywords: Consumer credit; Credit cards (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (15)

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