The Finance Brown Bag Seminar is held by the Institute for Finance, Banking and Insurance (WU Vienna) and the Vienna Graduate School of Finance (VGSF). It serves as a presentation platform for PhD students, faculty members, and visitors. An overview of BBS on the website of the Institute for Finance, Banking and Insurance.
June 18th, 2018, 12:00-13:30, D4.0.019
Artashes Karapetyan (BI Norwegian Business School)
Title: "To Ask or Not To Ask? Collateral versus Screening in Lending Relationships"
Using a comprehensive loan-level dataset, we study the impact of bank-firm relationships on collateral requirements both at the beginning of a relationship and over time. First, we exploit the EBA capital exercise, a quasi-natural shock that required increased capital requirements for a number of banking groups in the European Union. This experiment ceteris paribus makes secured lending cheaper vis-`a-vis unsecured lending for the affected banks, since secured loans require less regulatory capital. We find that relative to the control group, the affected banks engaged in more collateralized lending. However, we further find this effect is less pronounced for relationship borrowers. Second, extending the analysis to span nine years of data, we document that to loyal borrowers with long relationship potential, the bank is more likely to offer unsecured credit at the beginning of the relationship, complementing existing evidence that collateral requirements decline over the course of the relationship. The results suggest that relationship banking is important for alleviating credit access – both during hard times for banks, as well as at the beginning of borrowers' lives - especially for small, collateral-constrained businesses.