Can Relationship Banking Survive Competition?
Article first published online: 17 DEC 2002
The American Finance Association 2000
The Journal of Finance
Volume 55, Issue 2, pages 679–713, April 2000
How to Cite
Boot, A. W. A. and Thakor, A. V. (2000), Can Relationship Banking Survive Competition?. The Journal of Finance, 55: 679–713. doi: 10.1111/0022-1082.00223
- Issue published online: 17 DEC 2002
- Article first published online: 17 DEC 2002
- Cited By
How will banks evolve as competition increases from other banks and from the capital market? Will banks become more like capital market underwriters and offer passive transaction loans or return to their roots as relationship lending experts? These are the questions we address. Our key result is that as interbank competition increases, banks make more relationship loans, but each has lower added value for borrowers. Capital market competition reduces relationship lending (and bank lending shrinks), but each relationship loan has greater added value for borrowers. In both cases, welfare increases for some borrowers but not necessarily for all.