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Relationship and Transaction Lending in a Crisis

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

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.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 714.

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Date of creation: Feb 2016
Handle: RePEc:bge:wpaper:714
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