Journal of Financial Economics Vol. 170 2025
A quantitative analysis of bank lending relationships
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.
- DOI
- 10.1016/j.jfineco.2025.104083
- Volume
- 170
- Pages
- 104083
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib