A Quantitative Analysis of Bank Lending Relationships

Kyle Dempsey () and Miguel Faria-e-Castro

No 2022-033, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We study the aggregate consequences of dynamic lending relationships in a model of heterogeneous banks facing financial frictions. We estimate the model's loan demand system on administrative loan-level data: the market power implied by the estimated strength and persistence of relationships yields a long run reduction in credit of 5.9%. Relationships amplify the negative real effects of credit supply shocks, but mute those of negative credit demand shocks. In a financial crisis which destroys 25% of bank net worth, for example, loan volume drops more than twice as much in our baseline model than in a competitive analog with no relationships, but banks recapitalize faster.

Keywords: banking; lending relationships; aggregate dynamics (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2022-09-23, Revised 2025-03-06
New Economics Papers: this item is included in nep-ban, nep-dge, nep-fdg and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2022/2022-033.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:94821

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2022.033

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().