Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis

36 Pages Posted: 28 Dec 2020 Last revised: 21 Apr 2024

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE); Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Raluca A. Roman

Federal Reserve Bank of Philadelphia

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Teng Wang

Board of Governors of the Federal Reserve System; Bank for International Settlements (BIS)

Date Written: April 20, 2024

Abstract

Do banks give their relationship borrowers (“friends”) better lending terms than others when these “friends” are “in need”? We find the answer is “No” using identification from negative shocks to business borrowers during the economic crisis phase of COVID-19. This novel result complements prior findings of “Yes” during banking crises and “Sometimes” during normal times. We also find banks manage their relationship borrowers differently based on their individual conditions: those “in less need” receive harsher terms than those “in more need.” With the literature, the results provide a more comprehensive picture of relationship lending under different economic and financial conditions.

Keywords: Banks, relationship lending, loan contract terms, financial crises, COVID-19

JEL Classification: G01, G21, G28

Suggested Citation

Berger, Allen N. and Bouwman, Christa H. S. and Norden, Lars and Roman, Raluca A. and Udell, Gregory F. and Wang, Teng, Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis (April 20, 2024). Available at SSRN: https://ssrn.com/abstract=3755243 or http://dx.doi.org/10.2139/ssrn.3755243

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene St.
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Christa H. S. Bouwman

Texas A&M University ( email )

360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)

HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

Raluca A. Roman

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Teng Wang (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Bank for International Settlements (BIS)

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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