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Can Relationship Banking Survive Competition?

Boot, Arnoud W. A., Thakor, Anjan V.·2000·The Journal of Finance

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Abstract

How will banks evolve as competition increases from other banks and from the capital market? Will banks become more like capital market underwriters and offer passive transaction loans or return to their roots as relationship lending experts? These are the questions we address. Our key result is that as interbank competition increases, banks make more relationship loans, but each has lower added value for borrowers. Capital market competition reduces relationship lending (and bank lending shrinks), but each relationship loan has greater added value for borrowers. In both cases, welfare increases for some borrowers but not necessarily for all.

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Diamond, D. W. (1984) · The Review of Economic Studies · doi:10.2307/2297430 · Cited by 8,476

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“…assumption is also adopted in many other papers that do not focus on bank competition, such as Besanko and Kanatas (1993); Boot and Greenbaum (1993); Boot and Thakor (2000); Dell’Ariccia and Marquez (2006), and Allen et al. (2011). screening and monitoring as an essential feature of…”
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Agier, I., & Agier, I. (2011) · doi:10.2139/ssrn.1946912 · Cited by 23
“Relationship has two main advantages: on one hand, it allows to acquire information on the borrower and to uncover his type (Petersen and Rajan, 1995; Boot and Thakor, 2000), and, on the other hand, to discipline his behavior and align borrower's target to lender's one (Boot and Thakor, 1994).”
SBA-Loan Guarantees and Local Economic GrowthPreprint
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Relationship banking and escalating commitments to bad loans
Kang, E., Zardkoohi, A., Paetzold, R. L., & Fraser, D. (2013) · Small Business Economics · doi:10.1007/s11187-011-9392-x · Cited by 22
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Buch, C. (2002) · doi:10.1057/ces.2002.4 · Cited by 22
“Boot and Thakor (1997b), for instance, have argued that the US financial system has been relatively conducive to innovation because of the restrictions that used to be imposed on combining commercial and investment banking activities.”
Background
Lending to uncreditworthy borrowers
Sengupta, R. (2007) · doi:10.2139/ssrn.1022978 · Cited by 22
“A growing literature examines how lenders acquire information about borrower creditworthiness in the course of a lending relationship (Boot and Thakor, 1994, 2000; Boot, 2000).”
Bank market power and financial reporting quality
Mi, B., Zhang, L.-Q., Han, L., & Shen, Y. (2023) · Journal of Corporate Finance · doi:10.1016/j.jcorpfin.2023.102530 · Cited by 21
Returnee directors and cost of debt
Khan, M., Tawiah, V., Usman, M., Wang, F., & Gyapong, E. (2023) · Journal of business research · doi:10.1016/j.jbusres.2023.114118 · Cited by 21
The Beauty of Being Involved: The Case of Cooperative Banks
Fiordelisi, F., Grimaldi, S., Lopez, J., Mazzilis, M. C., & Ricci, O. (2022) · British Journal of Management · doi:10.1111/1467-8551.12698 · Cited by 21
Local bank competition and small business lending after the onset of the financial crisis
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“In contrast, the model of Boot and Thakor (2000) suggests that competition encourages relationship lending because it enables banks to maintain satisfactory prices in competitive markets.”

Authors: Boot, A. W. A., & Thakor, A. V.
Affiliations: Tinbergen Institute (NL)
ORCID: Boot, Arnoud W. A.
Thakor, Anjan V.
Venue: The Journal of Finance
Publisher: Wiley
Published: 2000-04
Volume: 55
Issue: 2
Pages: 679-713
ISSN: 0022-1082 (ISSN-L)
1540-6261
DOI: 10.1111/0022-1082.00223
OpenAlex: W2167141920
Cited by: 1,590
References: 0
Citations by year: 2026: 54 · 2025: 80 · 2024: 78 · 2023: 82 · 2022: 60 · 2021: 62 · 2020: 76 · 2019: 76 · 2018: 76 · 2017: 53 · 2016: 62 · 2015: 73 · 2014: 53 · 2013: 81 · 2012: 63
FWCI: 59.16
Type: journal article
Language: en
Open access: closed
Licence: onlinelibrary.wiley.com/termsAndConditions#vor (vor, 990 d)
Locations: The Journal of Finance (publishedVersion)
RePEc: Research Papers in Economics (submittedVersion)
OpenGrey (Institut de l'Information Scientifique et Technique) (submittedVersion)
UvA-DARE (University of Amsterdam) (submittedVersion)
Data Archiving and Networked Services (DANS) (submittedVersion)
Topics: Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
Social Sciences › Economics, Econometrics and Finance › Finance › Corporate Finance and Governance
Social Sciences › Economics, Econometrics and Finance › Finance › Banking Systems and Strategies
Keywords: relationship banking, relationship lending, bank competition, capital market competition, bank lending, borrower welfare, underwriting

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Can Relationship Banking Survive Competition?

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