Review of Financial Studies Vol. 29 No. 10 2016
Relationship and Transaction Lending in a Crisis
Abstract
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.
- Volume
- 29
- Issue
- 10
- Pages
- 2643-2676
- Sources
- bibtex:phds-export.bib