The Value of Relationship Banking during Financial Crises : Evidence from the Republic of Korea
A systemic financial crisis with monetary restriction is probably the most promising occasion for assessing whether, and to what extent, relationship banking is valuable to borrowers. The authors take this question to a unique database of credit bu...
| Main Authors: | , , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/02/1003148/value-relationship-banking-during-financial-crises-evidence-republic-korea-value-relationship-banking-during-financial-crises-evidence-republic-korea http://hdl.handle.net/10986/19710 |
| id |
okr-10986-19710 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-197102021-04-23T14:03:44Z The Value of Relationship Banking during Financial Crises : Evidence from the Republic of Korea Ferri, Giovanni Kang, Tae Soo Kim, In-June ADVERSE SELECTION BALANCE SHEET BALANCE SHEETS BANK LENDING BANK LENDING RATES BANK LOANS BANK OF KOREA BANK PROFITS BANK RELATIONSHIPS BANKING CRISIS BANKING RELATIONSHIPS BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKS BONDS BORROWER BORROWING BORROWINGS BUDGET CONSTRAINTS CAPITAL ADEQUACY CAPITAL LOANS CAPITALIZATION COLLATERALIZATION COMMERCIAL BANKS COMMITMENT CORPORATE SECTOR CREDIT RATIONING CREDIT RISK DEBT DIRECT FINANCING ECONOMICS EMPIRICAL ANALYSIS EXCHANGE RATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SERVICES FINANCIAL STATEMENT FINANCIAL STATEMENT ANALYSIS FINANCIAL SYSTEMS FOREIGN BANKS HOUSING INSURANCE INTEREST RATES LENDER LENDERS LENDING RATE LIQUIDATION LIQUIDITY LOAN LOAN SIZE MARKET VALUATION MATURITY MERCHANT BANKING MONETARY POLICY MORAL HAZARD PRESENT VALUE PROFITABILITY PROPRIETARY INFORMATION REAL ESTATE RELATIONSHIP BANKING RENTS SAVINGS SECURITIES SECURITIES MARKETS SPECIALIZED BANKS STOCK MARKETS STOCKS WORKING CAPITAL A systemic financial crisis with monetary restriction is probably the most promising occasion for assessing whether, and to what extent, relationship banking is valuable to borrowers. The authors take this question to a unique database of credit bureau, microeconomic information covering the pervasive financial crisis the Republic of Korea experienced in 1997-98. The database includes all corporate borrowers surveyed by the Korean Credit Bureau, providing details on the structure of their borrowings, and on their relationship with lending banks. The authors did not have access to the identity of the corporate borrower, and their only non-financial control variable was the borrower's Standard Industrial Classification (SIC). This restriction limited their analysis to smaller borrowers, keeping their sample focused on small, and medium-size enterprises, which were likely to rely on banks for external financing. Their findings: 1) Outstanding loans plunge more for firms with weaker pre-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 relationship banking. 3) More intense pre-crisis relationship banking reduces the probability that a previously non-delinquent firm would build (increase) its loans in arrears in 1998, the year of the sharpest liquidity constraints. 4) All things equal, this probability depends on whether firms were borrowing from one (or more) of the five banks foreclosed in June 1998, showing that it might be particularly difficult for borrowers to replace distressed lending banks during a financial crisis. The authors' findings support the hypothesis that relationship banking = with surviving banks - has a positive value during a systemic financial crisis. They argue that for many viable small, and medium-size businesses in Korea, relationship banking reduced liquidity constraints, and thus, diminished the probability of unwarranted bankruptcy. 2014-08-26T19:52:23Z 2014-08-26T19:52:23Z 2001-02 http://documents.worldbank.org/curated/en/2001/02/1003148/value-relationship-banking-during-financial-crises-evidence-republic-korea-value-relationship-banking-during-financial-crises-evidence-republic-korea http://hdl.handle.net/10986/19710 English en_US Policy Research Working Paper;No. 2553 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research East Asia and Pacific Korea, Republic of |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ADVERSE SELECTION BALANCE SHEET BALANCE SHEETS BANK LENDING BANK LENDING RATES BANK LOANS BANK OF KOREA BANK PROFITS BANK RELATIONSHIPS BANKING CRISIS BANKING RELATIONSHIPS BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKS BONDS BORROWER BORROWING BORROWINGS BUDGET CONSTRAINTS CAPITAL ADEQUACY CAPITAL LOANS CAPITALIZATION COLLATERALIZATION COMMERCIAL BANKS COMMITMENT CORPORATE SECTOR CREDIT RATIONING CREDIT RISK DEBT DIRECT FINANCING ECONOMICS EMPIRICAL ANALYSIS EXCHANGE RATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SERVICES FINANCIAL STATEMENT FINANCIAL STATEMENT ANALYSIS FINANCIAL SYSTEMS FOREIGN BANKS HOUSING INSURANCE INTEREST RATES LENDER LENDERS LENDING RATE LIQUIDATION LIQUIDITY LOAN LOAN SIZE MARKET VALUATION MATURITY MERCHANT BANKING MONETARY POLICY MORAL HAZARD PRESENT VALUE PROFITABILITY PROPRIETARY INFORMATION REAL ESTATE RELATIONSHIP BANKING RENTS SAVINGS SECURITIES SECURITIES MARKETS SPECIALIZED BANKS STOCK MARKETS STOCKS WORKING CAPITAL |
| spellingShingle |
ADVERSE SELECTION BALANCE SHEET BALANCE SHEETS BANK LENDING BANK LENDING RATES BANK LOANS BANK OF KOREA BANK PROFITS BANK RELATIONSHIPS BANKING CRISIS BANKING RELATIONSHIPS BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKS BONDS BORROWER BORROWING BORROWINGS BUDGET CONSTRAINTS CAPITAL ADEQUACY CAPITAL LOANS CAPITALIZATION COLLATERALIZATION COMMERCIAL BANKS COMMITMENT CORPORATE SECTOR CREDIT RATIONING CREDIT RISK DEBT DIRECT FINANCING ECONOMICS EMPIRICAL ANALYSIS EXCHANGE RATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SERVICES FINANCIAL STATEMENT FINANCIAL STATEMENT ANALYSIS FINANCIAL SYSTEMS FOREIGN BANKS HOUSING INSURANCE INTEREST RATES LENDER LENDERS LENDING RATE LIQUIDATION LIQUIDITY LOAN LOAN SIZE MARKET VALUATION MATURITY MERCHANT BANKING MONETARY POLICY MORAL HAZARD PRESENT VALUE PROFITABILITY PROPRIETARY INFORMATION REAL ESTATE RELATIONSHIP BANKING RENTS SAVINGS SECURITIES SECURITIES MARKETS SPECIALIZED BANKS STOCK MARKETS STOCKS WORKING CAPITAL Ferri, Giovanni Kang, Tae Soo Kim, In-June The Value of Relationship Banking during Financial Crises : Evidence from the Republic of Korea |
| geographic_facet |
East Asia and Pacific Korea, Republic of |
| relation |
Policy Research Working Paper;No. 2553 |
| description |
A systemic financial crisis with
monetary restriction is probably the most promising occasion
for assessing whether, and to what extent, relationship
banking is valuable to borrowers. The authors take this
question to a unique database of credit bureau,
microeconomic information covering the pervasive financial
crisis the Republic of Korea experienced in 1997-98. The
database includes all corporate borrowers surveyed by the
Korean Credit Bureau, providing details on the structure of
their borrowings, and on their relationship with lending
banks. The authors did not have access to the identity of
the corporate borrower, and their only non-financial control
variable was the borrower's Standard Industrial
Classification (SIC). This restriction limited their
analysis to smaller borrowers, keeping their sample focused
on small, and medium-size enterprises, which were likely to
rely on banks for external financing. Their findings: 1)
Outstanding loans plunge more for firms with weaker
pre-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 relationship
banking. 3) More intense pre-crisis relationship banking
reduces the probability that a previously non-delinquent
firm would build (increase) its loans in arrears in 1998,
the year of the sharpest liquidity constraints. 4) All
things equal, this probability depends on whether firms were
borrowing from one (or more) of the five banks foreclosed in
June 1998, showing that it might be particularly difficult
for borrowers to replace distressed lending banks during a
financial crisis. The authors' findings support the
hypothesis that relationship banking = with surviving banks
- has a positive value during a systemic financial crisis.
They argue that for many viable small, and medium-size
businesses in Korea, relationship banking reduced liquidity
constraints, and thus, diminished the probability of
unwarranted bankruptcy. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Ferri, Giovanni Kang, Tae Soo Kim, In-June |
| author_facet |
Ferri, Giovanni Kang, Tae Soo Kim, In-June |
| author_sort |
Ferri, Giovanni |
| title |
The Value of Relationship Banking during Financial Crises : Evidence from the Republic of Korea |
| title_short |
The Value of Relationship Banking during Financial Crises : Evidence from the Republic of Korea |
| title_full |
The Value of Relationship Banking during Financial Crises : Evidence from the Republic of Korea |
| title_fullStr |
The Value of Relationship Banking during Financial Crises : Evidence from the Republic of Korea |
| title_full_unstemmed |
The Value of Relationship Banking during Financial Crises : Evidence from the Republic of Korea |
| title_sort |
value of relationship banking during financial crises : evidence from the republic of korea |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2001/02/1003148/value-relationship-banking-during-financial-crises-evidence-republic-korea-value-relationship-banking-during-financial-crises-evidence-republic-korea http://hdl.handle.net/10986/19710 |
| _version_ |
1764440420804198400 |