Can Relationship Banking Survive Competition?

“Ippolito, Peydro, Polo, and Sette (2016) state that increasing competition can induce a risk reduction by the bank, and Boot and Thakor (2000) present evidence that more interbank competition goes along with an increasing amount of relationship loans.”

“30The collateral constraint can also be relaxed under relationship lending (Sharpe, 1990; Petersen and Rajan, 1994; Boot and Thakor, 2000; Detragiache, Garella, and Guiso, 2000; Degryse and Ongena, 2005; Bolton and Freixas, 2006; Parlour and Plantin, 2008; Repullo and Suarez, 2012; Bolton, Freixas, Gambacorta, and Mis…”

“Boot and Thakor (2000) described soft information as “qualitative information that the person in charge of bank loans obtains through multidimensional contact with the borrower during the process of providing financial services”.”

“This result is consistent with Boot and Thakor [24], Beck et al. [14], and Palacín-Sánchez and di Pietro [9].”

“It is recognized in the literature that these ties allow the lending institution to provide certain benefits: reduction of asymmetric information, increased credit availability, and more efficient decisions if borrowers face financial distress (Boot & Thakor, 2000; Gassen & Fülbier, 2015).”

“On the other hand, in districts with high interbank competition, the information environment is likely to be already rich (Boot and Thakor, 2000), leading the Law to have smaller effects.”

“Relationship banking generates a number of advantages, such as proximity to customers (Boot, 1999; Boot and Thakor, 2000; Cesarini, 2003; Di Salvo et al., 2004; Oliver Wyman, 2014), which may contribute positively to the quality of these banks’ loans.”

“However, once the industry becomes more competitive, the value of relationship banking decreases and banks respond by taking on more risk (see also Boot and Thakor 2000).”

“Much less attention, however, has been devoted to the potentially darker side of relationship lending, its role in limiting competition, barring market entry, and holding-up the borrower (Boot and Thakor (2000)).”

“Cooperative Banks Commercial Banks Cooperative Banks Commercial Banks Cooperative Banks Commercial Banks Cooperative Banks Commercial Banks ROE 0,0848 0,0868 0,0957 0,0735 0,0708 0,0036 0,0386 0,0319 (0,0290) (0,1043) (0,0284) (0,1510) (0,0260) (0,2302) (0,0257) (0,1068) CIR 64,678 66,662 60,709 64,775 64,056 75,571 6…”

“16 Hoshi, Kashyap, and Sharfstein (1990), Sharpe (1990), Gertner and Scharfstein (1991), Petersen and Rajan (1994), Boot (2000), Boot and Thakor (2000), Lehmann and Neuberger (2001). Rajan (1992) addresses the capture problem. See Flandreau (2003a) for a discussion of relationship banking in 19 th -century internation…”

“Our hypotheses are consistent with the view of Boot and Thakor (2000). Otherwise, following Petersen and Rajan (1995), relationship banking would have broken down in the market or at least all relationship clients regardless of their quality would take multiple loans at other transaction lenders.”

“For instance, Boyd and Prescott (1986) focus on the screening role of banks to show how these institutions, by generating signals on the economic situation, could help funds to be withdrawn from “bad” projects and to be invested in more profitable ones.”

“3 Boot and Thakor ( 2000 ) find that relationship lending enhances a borrower's project payoffs and increased interbank competition will lead to increased relationship lending, the dominant form of lending in Germany.”

“…konkurencji w sektorze bankowym skutkuje wzrostem zainteresowania banków kredytowa- mBank–CASE Seminar Proceedings No. 134 / Zeszyty mBank–CASE Nr 134 18 corporates, which creates opportunities to earn benefits based on unique information about the company and its business (Boot and Thakor, 2000).”

“Bank's possibility to extract future surpluses depends on their investment in sector speci cation and the concentration in the local banking market (Boot and Thakor, 2000).”

“…local community, improves the quality of screening and monitoring activities, thus allowing informationally opaque fi rms to obtain credit via lending relationships (e.g. Agarwal & Hauswald, 2010; Boot, 2000; Brevoort & Hannan, 2006; Degryse & Ongena, 2009; Mian, 2006; Petersen & Rajan, 1994, 2002).”

“The first comes from the ability of a bank to adopt and innovate its finances as well as improve its efficiency in a higher competition environment (Boot & Thakor, 2000; Laeven et al., 2015).”

“Another analytical perspective emphasizes the importance of the information acquired by the creditor throughout the course of a relationship, as this information will be critical to improving business profitability and value creation (Boot and Thakor 2000; Freixas 2005).”

“In addition to that, banks with higher equity might invest in less risky business because more capital of the equity holders is at stake (Bhattacharya and Thakor 1993).”

“…theory suggests that while there is a positive impact of relationship banking on easing the credit constraints for firms, relationship banking can also create the conditions for informational capture and lock-in, resulting in unfavourable terms and conditions in loan contracts (e.g., Boot, 2000).”

“(2003), Peek and Rosengren (2005) and Caballero et al. (2008). However, they mainly consider the existence of zombie lending and the consequences of such lending, while we consider the mechanism that leads to zombie lending or forbearance.”

“All rights reserved.”

“It may depend on the relation between the investor and the firm (e.g., Petersen and Rajan, 1994), the investor’s expertise in lending, such as sector-specialization (e.g., Boot and Thakor, 2000 ), and the availability and reliability of additional sources of information, such as audited financial statements.”

“This result is consistent with Boot and Thakor (2000), Beck, Demirgüç-Kunt and Maksimovic (2004) and challenges the well-known findings of Peterson and Rajan (1995).”

“…competition level (Martinez-Miera & Repullo, 2010), firming regulation (Fidrmuc & Hainz, 2013; Gersbacha & Rochet, 2017), macroeconomic factors (Sharpe, 1990; Hu & Gong, 2018), industry-specific factors (Boot & Thakor, 2000) and state intervention (Bassett et al., 2017) affect firm performance.”

“[61] stressed that there is still more work to be done to fully understand how the macroeconomic and regulatory framework influence corporate financing decisions.”

“Those points combined lead to the fact that relationship lending is positive for the customer even when considering the alternative of the capital market (Boot and Thakor 2000).”

“In addition, credit cooperatives can effectively reduce financial exclusion: since BCCs engage in relationship banking (Boot, 2000; Boot and Thakor, 2000), they are better equipped to deal with borrowers’ moral hazard (Angelini et al.”

“Alternatively, monitoring can be interpreted as the bank acquiring a knowledge that is complementary to that of the firm, thus helping the firm to raise its chance of success (Boot and Thakor, 2000). are sufficiently large that there will never be perfect monitoring in equilibrium.”

“The role of larger banks is also supported by the view of Boot and Thakor (2000), who proposed that larger banks did not need to give credit to risky investors, and could therefore select their clients, increasing both return on investment and the soundness of the credit portfolio.. Allen and Gale…”

“However, once the industry becomes more competitive, the value of relationship banking decreases and banks respond by taking on more risk (see also Boot and Thakor, 2000).”

“= θi(eAeA C + eA + eA C) − μS HθH(eBeB C + eB + eB C) ( 6 )”

“Another branch of the relationship banking literature is represented by Boot and Thakor (2000), where economic value is created through the lending relationship, and may be shared between banks and borrowers. If the effects from the first theory branch are more important, firms are adversely affected by banking relati…”

“relationship banking embedded in single firm-bank relationships to transactional banking provided through multiple firm-bank relationships (Boot and Thakor (2000)).”

“…banks in the province could drive local banks to specialize in relationship banking and invest in borrower-specific knowledge, on the whole making more frequent the use of lending technologies based on stable relationships (Boot and Thakor 2000; Hauswald and Marquez 2003; Brevoort and Hannan 2006).”