How do Large Firms Manage their Banking Pools?
37 Pages Posted: 18 Nov 2021
Date Written: November 16, 2021
This paper explores detailed questionnaire data about how large European firms manage their banking pools. We show that bank-firm relationships are differentiated in at least two dimensions: vertically in form of a hierarchy within the banking pool, and horizontally with banks specializing on certain services. We then analyze why companies terminate and initiate new relationships and why they promote or demote banks within the pool. We show that non-price aspects are more important than pricing, and that price competition is asymmetric: Banks with high interest rates are more likely to be dropped from the pool, but new banks do not appear to be chosen because of highly attractive pricing. Finally, we show that cross-selling of certain services such as cash management or debt capital market related services increases the stickiness of bank-firm relationships.
Keywords: Banking, Relationship lending
JEL Classification: G21, O12, L26
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