The Value of Relationship Banking during Financial Crises : Evidence from the Republic of Korea

Ferri, Giovanni ; Kang, Tae Soo ; Kim, In-June

World Bank, Washington, DC

关键词: ADVERSE SELECTION;    BALANCE SHEET;    BALANCE SHEETS;    BANK LENDING;    BANK LENDING RATES;   

DOI  :  10.1596/1813-9450-2553
RP-ID  :  WPS2553

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

A systemic financial crisis withmonetary restriction is probably the most promising occasionfor assessing whether, and to what extent, relationshipbanking is valuable to borrowers. The authors take thisquestion to a unique database of credit bureau,microeconomic information covering the pervasive financialcrisis the Republic of Korea experienced in 1997-98. Thedatabase includes all corporate borrowers surveyed by theKorean Credit Bureau, providing details on the structure oftheir borrowings, and on their relationship with lendingbanks. The authors did not have access to the identity ofthe corporate borrower, and their only non-financial controlvariable was the borrower's Standard IndustrialClassification (SIC). This restriction limited theiranalysis to smaller borrowers, keeping their sample focusedon small, and medium-size enterprises, which were likely torely on banks for external financing. Their findings: 1)Outstanding loans plunge more for firms with weakerpre-crisis relationship banking. 2) The drop in credit lines- arguably a proxy identifying shifts in the loan supply -is larger for firms relying less on strong relationshipbanking. 3) More intense pre-crisis relationship bankingreduces the probability that a previously non-delinquentfirm would build (increase) its loans in arrears in 1998,the year of the sharpest liquidity constraints. 4) Allthings equal, this probability depends on whether firms wereborrowing from one (or more) of the five banks foreclosed inJune 1998, showing that it might be particularly difficultfor borrowers to replace distressed lending banks during afinancial crisis. The authors' findings support thehypothesis that relationship banking = with surviving banks- has a positive value during a systemic financial crisis.They argue that for many viable small, and medium-sizebusinesses in Korea, relationship banking reduced liquidityconstraints, and thus, diminished the probability ofunwarranted bankruptcy.