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Relationship and Transaction Lending in a Crisis

Author

Listed:
  • Patrick Bolton
  • Xavier Freixas
  • Leonardo Gambacorta
  • Paolo Emilio Mistrulli

Abstract

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.

Suggested Citation

  • Patrick Bolton & Xavier Freixas & Leonardo Gambacorta & Paolo Emilio Mistrulli, 2016. "Relationship and Transaction Lending in a Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2643-2676.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:10:p:2643-2676.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhw041
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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