Lending relationships and credit rationingthe impact of securitization

Résumé

Stronger bank-firm relationships enhance credit supply to small and medium sized firms. We study whether different types of securitization activity (asset backed securities and covered bonds) of a firm�s main bank influences the impact of lending relationships on credit supply before and during the 2007-8 financial crisis. This paper combines several unique data sets to address this question. Employing a disequilibrium model to identify credit rationing, we find that more intense lending relationships, measured through their longer duration and lower number, considerable improve credit supply. In general, we find that a relationship with a bank that is more involved in securitization activities � asset backed securities and covered bonds � relaxes credit constraints in normal periods. In contrast, while a relationship with a firm�s main bank that issues covered bonds reduces credit rationing during crisis periods, the issuance of asset backed securities by a firm�s main bank aggravates these firm�s credit rationing in crisis periods.