39 Pages Posted: 31 Jul 2009 Last revised: 13 Dec 2011
Date Written: July 28, 2009
This paper empirically examines the benefits of relationship banking to banks, in the context of consumer credit markets. Using a unique panel dataset that contains comprehensive information about the relationships between a large bank and its credit card customers, we estimate the effects of relationship banking on the customers’ default, attrition, and utilization behavior. We find that relationship accounts exhibit lower probabilities of default and attrition, and have higher utilization rates, compared to non-relationship accounts, ceteris paribus. Such effects become more pronounced with increases in various measures of the strength of the relationships, such as relationship breadth, depth, length, and proximity. Moreover, dynamic information about changes in the behavior of a customer’s other accounts at the bank, such as changes in checking and savings balances, helps predict and thus monitor the behavior of the credit card account over time. These results imply significant potential benefits of relationship banking to banks in the retail credit market.
Keywords: Relationship Banking, Credit Cards, Consumer Credit, Deposits, Investments, Household Finance
Suggested Citation: Suggested Citation
Agarwal, Sumit and Chomsisengphet, Souphala and Liu, Chunlin and Souleles, Nicholas S., Benefits of Relationship Banking: Evidence from Consumer Credit Markets (July 28, 2009). Available at SSRN: https://ssrn.com/abstract=1440334 or http://dx.doi.org/10.2139/ssrn.1440334
By Jeremy Stein
By Jeremy Stein