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Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis

Author

Listed:
  • Allen N. Berger
  • Christa H. S. Bouwman
  • Lars Norden
  • Raluca Roman
  • Gregory F. Udell

Abstract

We analyze loan contract terms, investigating whether relationship borrowers fare better or worse than others in times of need, using the COVID-19 crisis as a quasi-natural experiment. COVID-19 is superior to prior crises for such analysis because its public health and government restrictions shocks directly harm borrowers, rather than banks. Our dataset includes Y-14Q, covering syndicated and non syndicated loans and small and large firms, unlike some other datasets. We find the dark side of relationships dominates across four relationship measures, 14 COVID-19 shocks, and PPP participation. There are limited pockets of bright-side findings associated with smaller firms and smaller banks.

Suggested Citation

  • Allen N. Berger & Christa H. S. Bouwman & Lars Norden & Raluca Roman & Gregory F. Udell, 2021. "Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis," Working Papers 21-13, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:90420
    DOI: 10.21799/frbp.wp.2021.13
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    File URL: https://www.philadelphiafed.org/the-economy/banking-and-financial-markets/is-a-friend-in-need-a-friend-indeed-how-relationship-borrowers-fare-during-the-covid-19-crisis
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    Citations

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    Cited by:

    1. Judit Temesvary & Andrew Wei, 2021. "Domestic Lending and the Pandemic: How Does Banks' Exposure to Covid-19 Abroad Affect Their Lending in the United States?," Finance and Economics Discussion Series 2021-056r1, Board of Governors of the Federal Reserve System (U.S.), revised 17 Nov 2021.
    2. Lo, Andrew W. & Thakor, Richard T., 2023. "Financial intermediation and the funding of biomedical innovation: A review," Journal of Financial Intermediation, Elsevier, vol. 54(C).
    3. Banerjee, Ryan N. & Gambacorta, Leonardo & Sette, Enrico, 2021. "The real effects of relationship lendingāœ°," Journal of Financial Intermediation, Elsevier, vol. 48(C).

    More about this item

    Keywords

    banks; bank loans; relationship lending; loan contract terms; financial crises; COVID-19; Paycheck Protection Program;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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