Relationship Lending During a Trust Crisis on the Interbank Market: A Friend in Need Is a Friend Indeed

9 Pages Posted: 7 Feb 2019

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Alexei Karas

Utrecht University, University College Roosevelt; Utrecht University School of Economics; Centre for Russian International Socio-Political and Economic Studies (CERISE)

Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University - Department of General Economics

Date Written: January 25, 2019

Abstract

We exploit uncertainty regarding banks' involvement in money laundering activities as a natural experiment to study the functioning of the interbank market in uncertain times. We show that bank couples with a stronger relationship (i.e., more frequent and reciprocal interactions before the event) are more likely to continue lending to one another, and at lower interest rates. This is in line with a "helping hand" or "flight to friends" hypothesis during crisis.

Keywords: banks, interbank market, trust crisis, relationship banking, helping-hand hypothesis

JEL Classification: G21

Suggested Citation

Degryse, Hans and Karas, Alexei and Schoors, Koen J. L., Relationship Lending During a Trust Crisis on the Interbank Market: A Friend in Need Is a Friend Indeed (January 25, 2019). Available at SSRN: https://ssrn.com/abstract=3322275 or http://dx.doi.org/10.2139/ssrn.3322275

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Alexei Karas

Utrecht University, University College Roosevelt ( email )

P.O. Box 94
NL-4331 CB Middelburg
Middelburg, NL-4330 AB
Netherlands
+31 118-655517 (Phone)
+31 118-655508 (Fax)

Utrecht University School of Economics ( email )

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Utrecht, +31 30 253 7373 3584 EC
Netherlands

Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

Hoveniersberg 24
Ghent, 9000
Belgium
+32 92643480 (Phone)
+32 92643599 (Fax)

Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 265 35 99 (Fax)

Ghent University - Department of General Economics ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 264 35 99 (Fax)

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