RELATIONSHIP LENDING DURING A TRUST CRISIS ON THE INTERBANK MARKET: A FRIEND IN NEED IS A FRIEND INDEED

Hans Degryse, Alexei Karas and Koen Schoors

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: We exploit uncertainty regarding banks' involvement in money laundering activities as a natural experiment to study the functioning of the interbank market in uncertain times. We show that bank couples with a stronger relationship (i.e., more frequent and reciprocal interactions before the event) are more likely to continue lending to one another, and at lower interest rates. This is in line with a "helping hand" or "flight to friends" hypothesis during crisis.

Keywords: banks; interbank market; trust crisis; relationship banking; helping-hand hypothesis (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2019-01
New Economics Papers: this item is included in nep-ban and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Relationship lending during a trust crisis on the interbank market: A friend in need is a friend indeed (2019)
Working Paper: Relationship Lending during a Trust Crisis on the Interbank Market: A Friend in Need is a Friend Indeed (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:19/954

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