IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Can Relationship Banking Survive Competition?

  • Boot, Arnoud W A
  • Thakor, Anjan

We develop a model of the banking firm that is intended to reflect contemporary trends in the evolution of banks. In particular, we focus on the effects of both interbank and capital market competition on the role of banks in funding corporations. In our model, banks can choose to provide loans that are similar to capital market funding (transaction loans) or loans that involve unique bank-specific services (relationship loans). Borrowers can choose one of these two types of bank loans or directly access the capital market. Our key result is that, contrary to what many believe, a bank’s optimal response to increased competition is to expand relationship lending relative to its transaction lending. The behaviour of the absolute level of relationship lending with respect to increasing competition is non-monotone. Initially, an elevation in competition leads to an increase in the expected level of relationship lending, but then the expected level of relationship lending falls as competition rises further. Moreover, the viability of relationship banking depends significantly on the reputational quality of banks.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1592
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1592.

as
in new window

Length:
Date of creation: Mar 1997
Date of revision:
Handle: RePEc:cpr:ceprdp:1592
Contact details of provider: Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1592. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.