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Working Paper
A Quantitative Theory of Relationship Lending
Borrower-lender relationships tend to be long-lasting, and borrowers switch lenders infrequently. We analyze the aggregate consequences of these facts in a model of heterogeneous banks subject to financial frictions that incorporates lending relationships as a form of customer capital for banks. The model's loan demand system is directly estimated on administrative loan-level data to recover key parameters governing the strength and persistence of relationships. The degree of market power deriving from lending relationships is consistent with a long run reduction in total credit of 4.1% ...
Working Paper
A Quantitative Analysis of Bank Lending Relationships
We study the aggregate consequences of sticky lending relationships in a model of heterogeneous banks facing financial frictions. We estimate the model's loan demand system on administrative loan-level data: the market power implied by the estimated strength and persistence of relationships yields a long run reduction in credit of 4.1%. Relationships amplify the negative real effects of credit supply shocks, but mute those of negative credit demand shocks. In a financial crisis which wipes out 25% of bank net worth, for example, loan volume drops 36% more in our baseline model than in a ...