Conference Agenda

Theory suggests that, by lending to a firm, inside banks gain an informational advantage over non-lender outside banks. This informational gap hinders borrowers from switching lenders due to a winner’s curse faced by competing outside banks, leading to hold-up problems. In this paper, we show that firms can reduce this informational gap by forming deposit relationships with outside banks, thereby attenuating hold-up. Using unique data on the deposit and lending relationships of all firm-bank pairs in Norway, we find that having a deposit relationship with non-lender outside banks significantly increases a firm's likelihood of switching lenders. Furthermore, firms that have a prior deposit relationship with new lenders obtain significantly better loan conditions upon switching. In line with informational hold-up theory, these effects are driven by reduced information asymmetries, not cross-selling. Our findings have important implications for open banking and hold-up problems in the loan market.

We study how corporate clients react to bank distress on both sides of the bank's balance sheet, using the 2017 failure of two regional banks in Italy. We find that deposit runs from firms begin before households as soon as the banks' distress becomes public. A simultaneous process of endogenous deterioration begins on the asset side: as soon as the banks' problems become apparent, their riskier corporate clients with single lending relationships draw down their credit lines, while their creditworthy clients seek new lending relationships with larger and better-capitalized banks. Riskier firms, unable to leave the distressed banks, reduce investment, while other banks in the region experience positive spillover effects.

Bank branch density, defined as the number of a bank’s branches to its total deposits, declined significantly between 2010 and 2022 due to branch closures and a near doubling of deposits. Although banks with low branch density initially benefited from large deposit inflows, their stock prices plummeted during the 2023 Banking Crisis, when they faced significant outflows of uninsured deposits. Our results suggest that by offering digital banking services and higher deposit rates, low-density banks grew faster and attracted large uninsured deposits, yet when economic conditions worsened, those deposit inflows took the form of “hot money” that changed course.