The Real Effects of Relationship Lending

61 Pages Posted: 6 Oct 2017

See all articles by Ryan Banerjee

Ryan Banerjee

Bank for International Settlements (BIS)

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Enrico Sette

Bank of Italy

Multiple version iconThere are 3 versions of this paper

Date Written: September 27, 2017

Abstract

This paper studies the real consequences of relationship lending on firm activity in Italy following Lehman Brothers’ default shock and Europe’s sovereign debt crisis. We use a large data set that merges the comprehensive Italian Credit and Firm Registers. We find that following Lehman’s default, banks offered more favourable continuation lending terms to firms with which they had stronger relationships. Such favourable conditions enabled firms to maintain higher levels of investment and employment. The insulation effects of tighter bank-firm relationships was still present during the European sovereign debt crisis, especially for firms tied to well capitalised banks.

Keywords: relationship banking, real effects of credit, credit supply

JEL Classification: E44, G21

Suggested Citation

Banerjee, Ryan and Gambacorta, Leonardo and Sette, Enrico, The Real Effects of Relationship Lending (September 27, 2017). Bank of Italy Temi di Discussione (Working Paper) No. 1133, Available at SSRN: https://ssrn.com/abstract=3048284 or http://dx.doi.org/10.2139/ssrn.3048284

Ryan Banerjee

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Enrico Sette (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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