Relationship banking: What do we know?

Abstract

journal of financial intermediation 9, 7–25 (2000) doi:10.1006/jfin.2000.0282, available online at www.idealibrary.com on relationship banking: what do we know? arnoud w. a. boot1 the university of amsterdam, tinbergen institute, and cepr received october 14, 1999 this paper briefly reviews the contemporary literature on relationship banking. we start out with a discussion of the raison d’ˆetre of banks in the context of the financial intermediation literature. from there we discuss how relationship banking fits into the core economic services provided by banks and point at its costs and benefits. this leads to an examination of the interrelationship between the competitive environment and relationship banking as well as a discussion of the empirical evidence. journal of economic literature classification numbers: g20, g21, l10. c(cid:176) 2000 academic press 1. introduction the modern literature on financial intermediation has primarily focused on the role of banks as relationship lenders. in this capacity, banks develop close relationships with borrowers over time. such proximity between the bank and the borrower has been shown to facilitate monitoring and screening and can overcome problems of asymmetric information. in this view, relationships emerge as a prime source of an incumbent bank’s comparative advantage over de novo lenders. in recent years, however, the proliferation of transaction-oriented banking (trading) and direct funding available in the financial markets has …

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