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Lending Relationships, Bank Default and Economic Activity

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  • Steven Ongena

Abstract

The paper reviews contributions in the literature, which lend theoretical and empirical credibility to the idea that the banking relationship is valuable and important for the firm. Banks offer a lending relationship as the solution to the firm's ongoing credit needs. Bank default disrupts this relationship. Hence risk in the banking sector influences the value of the relationship, the cost of corporate finance, and the level and growth of real activity. As bank default is often the result of fraud and internal irregularities, it is hard to predict. Bank default affects the economy through a number of different channels. The loss of the relationship, benefit for the firm is an important route through which the health of the banking sector influences real activity.

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Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 6 (1999)
Issue (Month): 2 ()
Pages: 257-280

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Handle: RePEc:taf:ijecbs:v:6:y:1999:i:2:p:257-280

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Keywords: Lending Relationship; Bank Default;

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Cited by:
  1. Lukas Menkhoff & Doris Neuberger & Chodechai Suwanaporn, 2005. "Collateral-Based Lending in Emerging Markets: Evidence from Thailand," Finance 0501008, EconWPA.
  2. Degryse, H.A. & Ongena, S., 2002. "Bank-firm relationships and international banking markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-92220, Tilburg University.
  3. de Haas, Ralph & van Horen, Neeltje, 2009. "The strategic behavior of banks during a financial crisis; evidence from the syndicated loan market," MPRA Paper 14164, University Library of Munich, Germany.
  4. Ralph de Haas & Neeltje van Horen, 2011. "Running for the Exit: International Banks and Crisis Transmission," DNB Working Papers 279, Netherlands Central Bank, Research Department.
  5. Mike Mariathasan & Ouarda Merrouche, 2012. "Recapitalization, credit and liquidity," Economic Policy, CEPR & CES & MSH, vol. 27(72), pages 603-646, October.
  6. Swamy, Vighneswara & S, Sreejesh, 2012. "Financial Instability, Uncertainty and Banks’ Lending Behaviour," MPRA Paper 47518, University Library of Munich, Germany.

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