“Sorry, We're Closed" Loan Conditions when Due to Branch Closure Firms Transfer to another Bank
We study loan conditions when bank branches close and firms subsequently transfer to a branch of another bank in the vicinity. Such transfer loans allow us for the first time to observe the conditions granted when banks pool-price new applicants. Consistent with recent theoretical work on hold up in bank-firm relationships we find that transfer loans do not receive the discount in loan rates that prevail when firms otherwise switch banks. We hereby critically augment recent empirical evidence on dynamic cycles in loan rates.
Area: Banking
Keywords: competition, switching costs, relationship banking
