Relationship and Transaction Lending in a Crisis

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, allowing them to provide loans to profitable firms during a crisis. Because of the services they provide, operating costs of r...

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Bibliographic Details
Published in:The Review of financial studies 2016-10, Vol.29 (10), p.2643-2676
Main Authors: Bolton, Patrick, Freixas, Xavier, Gambacorta, Leonardo, Mistrulli, Paolo Emilio
Format: Article
Language:English
Subjects:
Bank capital
Bank loans
Banking
Banking crises
Banks
Business entities
Economic crises
Economic crisis
Financial transactions
Italy
Lending institutions
Loan rates
Loans
Operating costs
Relationship banking
Studies
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Summary: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, allowing them to provide loans to profitable firms during a crisis. Because of the services they provide, operating costs of relationship banks are higher than those of transaction banks. Relationship banks charge a higher intermediation spread in normal times, but offer continuation lending at more favourable terms than transaction banks to profitable firms in a crisis. Using credit register information for Italian banks before and after the Lehman Brothers' default, we test the theoretical predictions of the model.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhw041