Relationship Banking, Deposit Insurance and Bank Portfolio Choice

David Besanko and Anjan Thakor ()

Finance from University Library of Munich, Germany

Abstract: The purpose of this paper is to examine the consequences of interbank competition and bank-capital market competition on the portfolio choices of banks and the welfare of borrowers in a regulatory environment of (de facto) complete deposit insurance. Our focus is on an industry characterized by 'relationship banking', i.e. a setting involving repeated, bilateral credit transactions between banks and borrowers. A key feature of relationship banking is the intertemporal accumulation of proprietary borrower-specific information in the hands of the bank, and the consequent creation of informational rents. To the extent that these rents are shared by the bank and the borrower, both parties see a value in continuing their relationship. The desire to protect such relationships affects the bank's asset portfolio choice.

JEL-codes: G (search for similar items in EconPapers)
Date: 2004-11-30
New Economics Papers: this item is included in nep-fin and nep-ias
Note: Type of Document - pdf
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0411046

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