Relationship Bank Behavior During Borrower Distress
54 Pages Posted: 28 Feb 2011 Last revised: 22 Sep 2017
Date Written: September 20, 2017
This paper provides a comprehensive examination of the time series behavior of relationship banks around and during borrower distress. Relationship and outside loans have similar interest rates during distress, and even two years prior to distress. Relative to outside loans in distress, relationship loans in distress have lower maturity. The fraction of bank lending given by relationship banks reduces during borrower distress. Overall, borrowers in distress do not derive benefits from relationship banks. These findings are inconsistent with models that suggest banks have an implicit commitment to help their borrowers in distress due to reputation concerns.
Keywords: Relationship Banking, Distress, Loan Pricing, Collateral
JEL Classification: G21, G33
Suggested Citation: Suggested Citation