Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure

Berger, Allen N.; Udell, Gregory F.

doi:10.2139/ssrn.285937

Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure

FEDS Working Paper No. 2001-36

36 Pages Posted: 4 Oct 2001

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

There are 3 versions of this paper

Date Written: September 2001

Abstract

This paper models the inner workings of relationship lending, the implications for bank organizational structure, and the effects of shocks to the economic environment on the availability of relationship credit to small businesses. Relationship lending depends on the accumulation over time by the loan officer of "soft" information. Because the loan officer is the repository of this soft information, agency problems are created throughout the organization that are best resolved by structuring the bank as a small, closely-held organization with few managerial layers. The shocks analyzed include technological innovations, regulatory regime shifts, banking industry consolidation, and monetary policy shocks.

Keywords: Banks, small business, mergers, relationship lending, organisational structure

JEL Classification: G21, G28, G34, L23

Suggested Citation: Suggested Citation

Berger, Allen N. and Udell, Gregory F., Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure (September 2001). FEDS Working Paper No. 2001-36. Available at SSRN: https://ssrn.com/abstract=285937 or http://dx.doi.org/10.2139/ssrn.285937