Banks and the Role of Lending Relationships: Evidence from the U.S. Experience, Rassegna Economica
One characteristic which may distinguish banks from other financial institutions is the role of relationships between the bank and its borrowers. These firm-lender relationships can help resolve market failures and thus provide a role for banks. This paper describes the theoretical role of lending relationships in financial markets. Relationships can generate useful information as well as be used to constrain borrowers. Empirically, relationships appear to have the greatest effect on the provision of credit opposed to the price at which firms are able to borrow. Finally the paper examines current changes in financial markets and their impact on the durability of lending relationships as well as their continued role in modern financial markets.
Petersen, A. Mitchell. 1999. Banks and the Role of Lending Relationships: Evidence from the U.S. Experience. Rassegna Economica. 63(1): 37-62.