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, which allows them to provide loans to profitable firms during a crisis. Due to 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.
Patrick Bolton, Xavier Freixas, Leonardo Gambacorta, and Paolo Mistrulli
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Bolton, Patrick, Xavier Freixas, Leonardo Gambacorta, and Paolo Mistrulli
. Relationship and Transaction Lending in a Crisis. February 08, 2016.