Bank Lending and Relationship Capital
type: CreativeWork
description: I develop an equilibrium theory of bank lending relationships in an economy subject to search frictions and limited enforceability. The model features a dynamic contracting problem embedded within a directed search equilibrium with aggregate and bank-specific uncertainty. The interaction between search and agency frictions generates a slow accumulation of lending relationship capital and distorts the optimal allocation of credit along both intensive and extensive margins. A crisis characterized by a sizable destruction of lending relationships therefore leads to a significant contraction in credit and a slow recovery, consistent with the Great Recession. I calibrate the model to study aggregate and cross-sectional implications and analyze policies aimed at reviving bank lending.
abstract: I develop an equilibrium theory of bank lending relationships in an economy subject to search frictions and limited enforceability. The model features a dynamic contracting problem embedded within a directed search equilibrium with aggregate and bank-specific uncertainty. The interaction between search and agency frictions generates a slow accumulation of lending relationship capital and distorts the optimal allocation of credit along both intensive and extensive margins. A crisis characterized by a sizable destruction of lending relationships therefore leads to a significant contraction in credit and a slow recovery, consistent with the Great Recession. I calibrate the model to study aggregate and cross-sectional implications and analyze policies aimed at reviving bank lending.
author: Boualam, Mohammed Yasser
language: en
date published: 2016-01-01
date modified: 2026-07-24T03:45:26Z
provider: University of Pennsylvania
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: University of Pennsylvania