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Piercing Through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses During Normal Times and the COVID-19 Crisis
We investigate bank relationships in a rarely considered context – consumer and small business credit cards. Using over one million accounts, we find during normal times, consumer relationship customers enjoy relatively favorable credit terms, consistent with the bright side of relationships, while the dark side dominates for small businesses. During the COVID-19 crisis, both groups benefit, reflecting intertemporal smoothing, with more benefits flowing to safer relationship customers. Conventional banking relationships benefit consumers more than credit card relationships, with mixed ...
Bank liquidity creation and bank capital
Recent theory papers by Diamond and Rajan (2000, 2001) and others suggest that banks with higher capital ratios may create less liquidity because capital diminishes financial fragility and/or ?crowds out? deposits. Other contributions suggest the opposite outcome: banks with higher capital ratios may create more liquidity because capital gives them greater capacity to absorb the risks associated with liquidity creation. We construct liquidity creation measures for U.S. banks from 1993-2003 and test these opposing theoretical predictions. Our calculations suggest that the industry created over ...
Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis
We analyze loan contract terms, investigating whether relationship borrowers fare better or worse than others in times of need, using the COVID-19 crisis as a quasi-natural experiment. COVID-19 is superior to prior crises for such analysis because its public health and government restrictions shocks directly harm borrowers, rather than banks. Our dataset includes Y-14Q, covering syndicated and non syndicated loans and small and large firms, unlike some other datasets. We find the dark side of relationships dominates across four relationship measures, 14 COVID-19 shocks, and PPP participation. ...