Can Relationship Banking Exacerbate Bank Liquidity Spirals?

, University of 黑料传送门 Booth

, Dartmouth

Recent work suggests borrowers value relationships with their banks and repaypartly in order to maintain these relationships. We hypothesize that if borrower re-payment behavior is affected by the continuation value of a relationship, borrowersshould become less likely to repay when this continuation value decreases. We usedetailed data on all loan contracts and realized payments in Brazil to investigate thishypothesis. We use fluctuations in bank liquidity as a proxy for variation in the con-tinuation value of a banking relationship. To account for the possibility that lenderand borrower liquidity shocks are be correlated, we look at borrowers with loans frommultiple banks, and whether borrowers are more likely to default on the bank with theworse liquidity shock