Relationship Banking during the Financial Crisis As of Mid-2007: Distinguishing between Affected and Unaffected Banks
36 Pages Posted: 3 Jan 2019
Date Written: March 28, 2017
This paper analyses the role of relationship banking during the financial crisis in Germany. On the basis of 4504 German firms, I investigate empirically how close and long-lasting relationships between banks and firm clients helped to mitigate a potential credit rationing at that time. I presume that financial institutions, which were affected by the crisis particularly reduced their credit supply. Moreover, I hypothesize that firms were most concerned by this contraction when they had several affected banking partners. The results of the investigation confirm the proposed hypotheses in general, an exception however are industrial companies. Overall, it can be stated that close banking relationships are beneficial in times of crises however they may have disadvantages when economic conditions are stable. My results also suggest that a solid equity ratio especially helped industrial firms to mitigate credit rationing during the crisis. Average capitalization levels, have increased for all firms since 2007.
Keywords: Relationship Banking, Global Financial Crisis
JEL Classification: E2
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