Distance, Bank Organizational Structure, and Credit

TILEC Discussion Paper No. 2007-018

31 Pages Posted: 11 Jun 2007

See all articles by Hans Degryse

Hans Degryse

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

Geraldo Cerqueiro

Catolica-Lisbon SBE

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: June 2007

Abstract

We survey the extant literature on the effects of both a bank's organizational structure and the physical distance separating it from the lender on lending decisions. Banks do engage in spatial pricing, where the underlying mechanism can be both transportation costs and information asymmetries. Moreover, their ability to discriminate is bounded by the reach of the lending technology of surrounding competitors. It is not entirely clear from an empirical viewpoint that small, decentralized banks have a comparative advantage in relationship lending. Differences in data and methodology may explain these mixed findings. If it does exist, this advantage can be motivated theoretically by the existence of agency and communication costs within a bank.

Keywords: financial intermediation, distance, organizations, loan rates, collateral

JEL Classification: G21, L11, L22

Suggested Citation

Degryse, Hans and Cerqueiro, Geraldo and Ongena, Steven R. G., Distance, Bank Organizational Structure, and Credit (June 2007). TILEC Discussion Paper No. 2007-018. Available at SSRN: https://ssrn.com/abstract=992691 or http://dx.doi.org/10.2139/ssrn.992691

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

Geraldo Cerqueiro

Catolica-Lisbon SBE ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Sch├Ânberggasse 1
Z├╝rich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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