Big Broad Banks: How Does Cross-Selling Affect Lending?

Review of Finance, Volume 28, Issue 2, March 2024, Pages 551–592, https://doi.org/10.1093/rof/rfad028

60 Pages Posted: 16 Apr 2021 Last revised: 31 Mar 2024

See all articles by Yingjie Qi

Yingjie Qi

Copenhagen Business School

Date Written: April 20, 2021

Abstract

This paper investigates how cross-selling affects relationship lending using internal data from a large bank and the Swedish credit registry. I show that within a bank-firm relationship, profit earned from non-loan products cross-subsidizes loans and increases (1) credit supply and (2) the likelihood of the bank's pausing or waiving interest payments for delinquent loans (lenience in delinquency). For identification, I exploit the Basel II-induced exogenous variation in products' profitability while holding constant the firm's creditworthiness and relationship informativeness. I find that the average affected firm experienced a decrease of 6% ($400,000) in credit supply and 30% (9.8 pp) in lenience in delinquency. The results highlight the importance of cross-subsidization as a mechanism through which cross-selling affects bank-firm relationships and inform optimal regulatory design for lenders who multi-produce.

Keywords: cross-subsidization, relationship banking, cross-selling, credit allocation, debt renegotiation

JEL Classification: G20, G21, G28

Suggested Citation

Qi, Yingjie, Big Broad Banks: How Does Cross-Selling Affect Lending? (April 20, 2021). Review of Finance, Volume 28, Issue 2, March 2024, Pages 551–592, https://doi.org/10.1093/rof/rfad028, Available at SSRN: https://ssrn.com/abstract=3074343 or http://dx.doi.org/10.2139/ssrn.3074343

Yingjie Qi (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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