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When arm’s length is too far: relationship banking over the business cycle

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  • Thorsten Beck

    ()
    (Cass Business School)

  • Hans Degryse

    ()
    (Faculty of Economics and Business, KU Leuven)

  • Ralph De Haas

    ()
    (EBRD)

  • Neeltje van Horen

    ()
    (De Nederlandsche Bank)

Abstract

Using a novel way to identify relationship and transaction banks, we study how banks’ lending techniques affect funding to SMEs over the business cycle. For 21 countries we link the lending techniques that banks use in the direct vicinity of firms to these firms’ credit constraints at two contrasting points of the business cycle. We show that relationship lending alleviates credit constraints during a cyclical downturn but not during a boom period. The positive impact of relationship lending in an economic downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe.

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Bibliographic Info

Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 169.

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Length: 38 pages
Date of creation: Jul 2014
Date of revision:
Publication status: Published in Working papers 169, European Bank for Reconstruction and Development
Handle: RePEc:ebd:wpaper:169

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Keywords: Relationship banking; credit constraints; business cycle;

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