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Short-Term Loans and Long-Term Relationships: Relationship Lending in Early America

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  • Bodenhorn, Howard

Abstract

Recent banking theory holds that durable firm-bank relationships are valuable to both parties. This paper uses the contract-specific loan records of a 19th-century U.S. bank and shows that firms with extended relationships received three principal benefits. First, firms with extended relationships had lower credit costs. Second, long-term customers provided fewer personal guarantees, which were an alternative to collateral. Third, long-term customers were more likely to have loan terms renegotiated during a credit crunch. These findings support theories that banks realize cost advantages through the use of proprietary information.

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  • Bodenhorn, Howard, 2003. "Short-Term Loans and Long-Term Relationships: Relationship Lending in Early America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 485-505, August.
    • Handle: RePEc:mcb:jmoncb:v:35:y:2003:i:4:p:485-505
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    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • G2 - Financial Economics - - Financial Institutions and Services

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