The Political Economy of Relationship Banking

Forthcoming in Research in International Business and Finance, 51, 2020

32 Pages Posted: 16 May 2019 Last revised: 5 Sep 2019

See all articles by Igor Loncarski

Igor Loncarski

University of Ljubljana - Faculty of Economics

Matej Marinc

University of Ljubljana - Faculty of Economics

Date Written: April 15, 2019

Abstract

In the aftermath of the global financial crisis, banks need to reevaluate their position in light of profound changes in the economic, social, and political landscape. On the one hand, we emphasize the benefits of relationship banking, which establishes close contact with bank customers. Through a long-term orientation, relationship banking aligns incentives and supports the long-term needs of bank customers, leading to reduced inequality and greater firm innovation. On the other hand, the interaction between politics and relationship banking can have dark sides. First, with new borders arising and competition in banking affected, relationship banking might be particularly prone to political interference. Second, a shock to the relationship bank can be transmitted to its borrowers. We analyze how relationship banking can overcome its drawbacks.

Keywords: Banking, Relationship Banking, Financial Crisis, Political Interference, Politics

JEL Classification: G20, G21, L86, O33

Suggested Citation

Lončarski, Igor and Marinc, Matej, The Political Economy of Relationship Banking (April 15, 2019). Forthcoming in Research in International Business and Finance, 51, 2020. Available at SSRN: https://ssrn.com/abstract=3372979

Igor Lončarski (Contact Author)

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, SI-1000
Slovenia
+386 5892 628 (Phone)
+386 5892 698 (Fax)

Matej Marinc

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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