Relationship and Transaction Lending in a Crisis

Patrick Bolton; Xavier Freixas; Leonardo Gambacorta; Paolo Emilio Mistrulli

doi:10.1093/rfs/hhw041

Relationship and Transaction Lending in a Crisis

Patrick Bolton¹; Xavier Freixas²; Leonardo Gambacorta³; Paolo Emilio Mistrulli⁴

¹ Columbia University, NBER, and CEPR · ² Universitat Pompeu Fabra, Barcelona Graduate School of Economics, and CEPR · ³ Bank for International Settlements, and CEPR · ⁴ Banca d'Italia

Review of Financial Studies 2016

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. Received July 29, 2014; accepted February 20, 2016 by Editor Philip Strahan.

DOI: 10.1093/rfs/hhw041
Volume: 29 (10)
Pages: 2643-2676
Language: en
Export: BibTeX
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