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Research on the links between regional economics and banking comprises many problems that affect spatial patterns of economic activity in various ways. In economics, capital is frequently supposed to be completely mobile across different regions, hence geographical dimensions in finance have produced a rather small body of literature compared to other fields of research. This thesis analyzes several links of regional factors to banking, namely the impacts of regional industrial clustering and distance on bank relationships as well as the effects of local real estate price growth on banks' risk-taking. A common factor of these issues is the impact of distance on the transmission of information, which applies to knowledge transfers within industrially specialized firm clusters, potential information asymmetries between distant borrower and lenders, and the ability to produce reliable predictions for price changes on local markets. Therefore, the thesis offers an insight whether distance is still a constraint of the transport of all relevant information in the age of strong development of digital techniques and whether being in proximity to a market changes firms' funding or banks' lending. The first two chapters of this thesis introduce the topics and show how the different aspects that are analyzed in the following are connected to each other. Furthermore, I discuss some of the concepts that are relevant for the following analyses. Local industrial specialization plays a crucial role in chapter 3, where the effects of potential industry externalities and competition on firms' external funding are analyzed. A special focus is placed on innovative firms, which might on the one hand benefit from industry externalities, but on the other hand suffer under harsher competition and incur more problems when it comes to gaining access to external funding. The analysis finds that local competition robustly affects firms' number of bank relationships negatively, while local industry specialization only has robust effects if the analyzed firm sample is split up w.r.t. industrial sectors. Distance, which is highly relevant for the existence of industrial externalities, is a key component of chapter 4. Here, I analyze whether interest rates of loans increase with borrower lender distance due to information asymmetries or higher transport costs. Analyzing a cross-section of 8,200 German firms, I find that borrower-lender distance has a significant effect on the interest rates paid in single bank relationships. Besides using higher risk premia for loans, collateral is a frequent method of overcoming risk in lending that is caused by information asymmetries. The impacts of real estate – which is commonly used as collateral – on banks' loan portfolio risk is investigated in chapter 5. This chapter analyzes whether information on local real estate price growth, which captures a variety of economic conditions, can explain changes in banks' risk-taking in lending. If banks have good knowledge about local real estate market development, they should be able to recognize whether price increases are fundamentally driven and therefore adapt their risk-taking. Analyzing a panel data of 390 German savings banks, which have a strong affiliation with local economies as well as with local real estate markets, I find that changes in local real estate price levels do not alter their risk-taking. The key results of the thesis are summarized in chapter 6.

submitted by Carolin Kräling Universität Linz, Masterarbeit, 2017

The first part of my thesis concerns credit information production of lenders. In a multi-period partial equilibrium model of lending to private households I compare arm’s-length lending with relationship lending that is based on information production about borrowers in preceding saving relationships. These are often the only source of private information that lenders possess about loan demanding households. The model shows that savings-linked relationship lending leads to a Pareto improvement or an increasing allocative efficiency of the financing market compared to arm’s-length lending in markets of low time preference or low average borrower quality. In these markets, savings-linked relationship lending can overcome financing market failure due to adverse selection, especially for financing volumes that are large in comparison to households’ periodic savings or incomes. Thus, the model shows that savings-linked relationship lending is particularly well suited and economically beneficial for housing finance of private households and is able to increase home ownership rates. Competitive savings-linked relationship lending, as derived in the model, shares major characteristics with contractual saving for housing which is a widespread and important product of housing finance in Continental Europe. My model therefore provides, to my knowledge, the first theoretical relationship lending explanation for contractual saving for housing. Further, my results add a novel economic explanation for synergies between the two main activities of traditional commercial banking, deposit-taking and lending. The second part of my thesis concerns credit information sharing between lenders. Credit information sharing between lenders can have a disciplinary effect on borrowers because defaulting with one lender ruins the reputation with every other lender (Vercammen, 1995; Padilla and Pagano, 2000). This reputation effect, however, diminishes and finally disappears the more comprehensive credit registries become. I show in a multi-period model of repeated lending that credit information sharing can induce borrower discipline beyond “passive” reputation effects if banks apply classical disciplining, that is, if failure to pay inevitably provokes consequences. I find that such disciplining can Pareto improve the efficiency of the financing market and reduce defaults by overcoming market failure and mitigating underinvestment in projects and in effort, even for comprehensive and unrestricted credit information sharing. I further show that disciplining borrowers by pro rata rationing credit after default is more promising than tightening credit rates. Hence, my model provides a rare case of efficient equilibrium credit rationing: disciplining by credit rationing enhances the efficiency of the market while constituting aggregate equilibrium credit rationing in the sense of Stiglitz and Weiss (1981). Contrary to the previous literature that suggests to restrict and randomize credit reporting in order to prevent diminishing reputation effects, the policy implications following from my work are, first, to rather restrict access to credit registries than their content and, second, to enhance transparency of information sharing. Der erste Teil der Arbeit betrachtet die Informationsproduktion von Kreditgebern über private Haushalte. In einem Mehrperiodenmodell vergleiche ich Arm’s-length-Kredite mit Relationship-Krediten, die auf Informationsproduktion über Kreditnehmer in vorangehenden Sparbeziehungen basieren. Das Modell zeigt, dass dieses sparbasierte Relationship Lending verglichen mit Arm’s-length-Krediten in Märkten mit niedriger Zeitpräferenz oder niedriger durchschnittlicher Schuldnerqualität zu einer Pareto-Verbesserung oder einer steigenden allokativen Effizienz des Finanzmarkts führt. In solchen Märkten kann sparbasiertes Relationship Lending Marktversagen aufgrund von adverser Selektion verhindern, insbesondere für Kreditvolumina, die hoch in Relation zum periodischen Einkommen/Sparen der Haushalte sind. Das Modell zeigt folglich, dass sparbasiertes Relationship Lending besonders für die Wohnungsfinanzierung von Haushalten geeignet und ökonomisch vorteilhaft ist und zudem steigende Wohneigentumsquoten bedingt. Das im Modell abgeleitete sparbasierte Relationship Lending teilt wesentliche Charakteristika mit Bausparen, das in Kontinentaleuropa ein weitverbreitetes und wichtiges Produkt der Wohnungsfinanzierung ist. Folglich bietet mein Modell meines Wissens die erste theoretische Relationship-Lending-Erklärung für Bausparen. Ferner fügen meine Ergebnisse eine neue ökonomische Erklärung für Synergien zwischen dem Einlagen- und dem Kreditgeschäft, den zwei Hauptaktivitäten des traditionellen Bankgeschäfts, hinzu. Der zweite Teil der Arbeit betrachtet den Austausch von Kreditinformationen zwischen Kreditgebern. Dieser Informationsaustausch kann einen disziplinierenden Effekt auf Kreditnehmer haben, weil diese ihre Reputation bei allen Kreditgebern ruinieren, wenn sie bei einem ausfallen (Vercammen, 1995; Padilla und Pagano, 2000). Dieser Reputationseffekt schwindet allerdings und verschwindet schließlich, je umfassender die Kreditregister werden. Ich zeige in einem Mehrperiodenmodell wiederholter Kreditvergabe, dass der Austausch von Kreditinformationen Disziplinierung jenseits von passiven Reputationseffekten induzieren kann, wenn Banken klassische Disziplinierung anwenden, das heißt, wenn Zahlungsausfälle unweigerlich zu Konsequenzen führen. Ich zeige, dass sogar bei umfassendem und unbeschränktem Austausch von Kreditinformationen solch eine Disziplinierung zu Pareto-Verbesserungen der Finanzmarkteffizienz führen kann und Kreditausfälle durch die Überwindung von Marktversagen und von Unterinvestitionen in Projekte und in unternehmerische Anstrengung verringert werden. Ich zeige weiter, dass die Disziplinierung von Kreditnehmern nach einem Kreditausfall durch pro rata Kreditrationierung effizienter ist als durch Kreditzinserhöhungen. Folglich beinhaltet mein Modell einen seltenen Fall von effizienter Gleichgewichts-Kreditrationierung: Die Disziplinierung mittels Kreditrationierung verbessert die Markteffizienz und konstituiert gleichzeitig aggregierte Gleichgewichts-Kreditrationierung im Sinne von Stiglitz und Weiss (1981). Im Kontrast zur bisherigen Literatur, die vorschlägt den Austausch von Kreditinformationen zu beschränken und zu randomisieren, um abnehmenden Reputationseffekten entgegenzuwirken, folgt aus meiner Arbeit: erstens sollte eher der Zugang zu Kreditregistern als ihr Inhalt beschränkt werden, und zweitens sollte die Transparenz des Informationsaustauschs erhöht statt durch Randomisierung verringern werden.

Most of the literature addressing multiple banking assumes equal financing shares. However, unequal, concentrated or asymmetric bank borrowing is widespread. This paper investigates the determinants of creditor concentration for German firms using a comprehensive bank-firm level dataset for the time period between 1993 and 2003. We document that lending is very often concentrated and, consequently, that relationship lending is important, not only for the small firms but also for the larger firms in our sample. However, we also find that risky, illiquid, large and leveraged firms spread their borrowing more evenly between multiple lenders. On the other hand, the degree of concentration increases with the profitability of the relationship lender. Relationship lending may spur financing provided by other banks, especially if the relationship lender is a public sector bank and if the other banks are large or do not have to tie up additional funds in capital.

Using a novel way to identify relationship and transaction banks, we study how banks' lending techniques affect funding to SMEs over the business cycle. For 21 countries we link the lending techniques that banks use in the direct vicinity of firms to these firms' credit constraints at two contrasting points of the business cycle. We show that relationship lending alleviates credit constraints during a cyclical downturn but not during a boom period. The positive impact of relationship lending in an economic downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe.

Lending specialization on certain industry sectors can have opposing effects on monitoring (including screening) abilities and on the sectoral concentration risk of a credit portfolio. In this paper, we examine in the first part if monitoring abilities of German cooperative banks and savings banks increase with their specialization on certain industry sectors. We observe that sectoral specialization generally entails better monitoring quality, particularly in the case of the cooperative banks. In the second part we measure the overall effect of better monitoring and the associated higher sectoral credit concentrations on the credit risk of the portfolio. Our empirical results suggest that specialization benefits overcompensate the impact of higher credit concentrations in the case of the cooperative banks. For savings banks, the results on the net effect depend on how specialization is measured. If specialization is gauged by Hirschman Herfindahl indices, the net effect is an increase of portfolio risk due to the higher sectoral concentration. If specialization is instead measured by distance measures, portfolio risk decreases as the impact of better monitoring abilities prevails.

Recent empirical findings by Elsas (2005) and Degryse and Ongena (2007) document a U-shaped effect of market concentration on relationship lending which cannot be easily accommodated by the investment and strategic theories of relationship lending. In this paper, we suggest that this non-monotonicity can be explained by looking at the organizational structure of local credit markets. We provide evidence that marginal increases in interbank competition are detrimental to relationship lending in markets where large and out-of-market banks are predominant. On the contrary, where relational-based lending technologies are al-ready widely in use in the market by a large group of small mutual banks, an increase in competition may drive banks to further cultivate their extensive ties with customers.

A puzzling but consistent result in the empirical literature on banking is that firms with close bank ties do not grow faster than bank-independent firms. In this paper, we reconsider the link between relationship lending and firms' growth, distinguishing firms by size and 'health'. The idea is that the beneficial effects of relationship lending on information asymmetries can be compensated by other negative capture, risk and externality effects which make relational banks reluctant to support long-term growth projects of client firms, and that the strength of these compensating effects varies with firm size and health status. We explore the influence of long-lasting bank relationships on employment and asset growth of a large sample of Italian firms. The main finding is that relationship lending hampers the efforts of small firms to increase their size, while it mitigates the negative growth of troubled, medium-large enterprises.

This paper presents the results of an analysis of data on individual bank loans of non-financial corporations in the Czech Republic taken from the CNB's Central Credit Register. It focuses on the question of how firms obtain financing from domestic banks. The results show that the vast majority of non-financial corporations use the services of just one relationship lender. Small and young firms in technology- and knowledge-intensive industries tend to concentrate their credit needs in a single bank, whereas less creditworthy firms and firms in cyclical industries tend to borrow from more than one bank. The analysis also reveals different behaviour of firms towards financing banks in case of multiple lenders. Finally, the paper shows that the level of credit risk at bank level decreases in line with the extent to which firms applying single relationship lending occur in the bank's portfolio.

Relationship banking involves the provision of financial services by an intermediary that a) invests in obtaining customer-specific information, often proprietary in nature; and b) evaluates the profitability of these investments through multiple interactions with the same customer over time and/or across products (Boot, 2000). We assess the presence and impact of relationship banking from an Irish SME perspective.We trace how significant patterns can be seen across several dimensions of the lender/business relationship using data for the year 2005. These dimensions include the duration of lender/business relationships and the cost of finance.

We examine why firms change their main bank and how this affects loans, interest payments and firm performance after switching. Using unique firm-bank matched Ukrainian data, the treatment effect estimates suggest that more transparent and riskier companies are more likely to switch their main bank. Importantly, main bank power, measured by equity holdings, appears to be one of the main drivers of firm switching behavior. Furthermore, we find that firms have lower performance after changing their main bank as they have to contend with higher interest payments. - Financial constraints ; switching ; main bank power ; firm performance ; Ukraine

Relationship lending is a common practice in credit financing all over the world, notably also in the European Union, which has been assumed to be particularly beneficial for Small and Medium-Sized Enterprises (SMEs). During recent years, there has been the impression that relationship lending loses ground due to a change of the banks' business models, which could ultimately yield to a worsening of the business environment for corporates and SMEs. In this study, we investigate the determinants of relationship lending for Germany, where relationship lending traditionally plays an important role. Compared to previous studies, we refer to much more comprehensive data with information on more than 16,000 firm-bank relationships. Our findings confirm the assumption that relationship lending seems to be an important pillar for economic growth and employment: We find that the firms that are most likely to contribute to (future) economic growth, namely small and R&D-intensive firms, tend to choose a relationship lender. The same is observed for firms of high credit quality, independent of their size or R&D intensity. Furthermore, we also observe that the importance of relationship lending did not decrease since the mid 1990s.

We explore the determinants of the number of long-term bank relations of listed Japanese firms using a unique data set covering the period 1982-1999. Japanese listed firms have about seven long-term bank loan relations on average, but show a large variation around the average. We analyze the determinants of the choice for the number of bank relations. We use data on loan and equity ownership to address the impact of the Japan-specific bank-firm relations and bank control on the number of loans decision. Having a relation with a topequity holding bank reduces the number of bank relations, while debt-rich and cash-poor firms have more bank relations.

Some of the most widely expressed myths about the German financial system are concerned with the close ties and intensive interaction between banks and firms, often described as Hausbank relationships. Links between banks and firms include direct shareholdings, board representation, and proxy voting and are particularly significant for corporate governance. Allegedly, these relationships promote investment and improve the performance of firms. Furthermore, German universal banks are believed to play a special role as large and informed monitoring investors (shareholders). However, for the very same reasons, German universal banks are frequently accused of abusing their influence on firms by exploiting rents and sustaining the entrenchment of firms against efficient transfers of firm control. In this paper, we review recent empirical evidence regarding the special role of banks for the corporate governance of German firms. We differentiate between large exchange-listed firms and small and medium sized companis throughout. With respect to the role of banks as monitoring investors, the evidence does not unanimously support a special role of banks for large firms. Only one study finds that banks' control of management goes beyond what non-bank shareholders achieve. Proxy-voting rights apparently do not provide a significant means for banks to exert management control. Most of the recent evidence regarding small firms suggests that a Hausbank relationship can indeed be beneficial. Hausbanks are more willing to sustain financing when borrower quality deteriorates, and they invest more often than arm's-length banks in workouts if borrowers face financial distress.

The German financial market is often characterized as a bank-based system with strong bank-customer relationships. The corresponding notion of a housebank is closely related to the theoretical idea of relationship lending. It is the objective of this paper to provide a direct comparison between housebanks and "normal" banks as to their credit policy. Therefore, we analyze a new data set, representing a random sample of borrowers drawn from the credit portfolios of five leading German banks over a period of five years. We use credit-file data rather than industry survey data and, thus, focus the analysis on information that is directly related to actual credit decisions. In particular, we use bank-internal borrower rating data to evaluate borrower quality, and the bank's own assessment of its housebank status to control for information-intensive relationships.