Benefits of relationship banking: Evidence from consumer credit markets

• Main Authors: AGARWAL, Sumit, CHOMSISENGPHET, Souphala, LIU, Chunlin, SONG, Changcheng, SOULELES, Nicholas S.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Relationship banking; Credit cards; Deposits; Investments; Household finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6505; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7504/viewcontent/benefits___PV.pdf
• Institution: Singapore Management University

Using a unique panel dataset that contains comprehensive information about the relationships between a large bank and its credit card customers, we show that relationship accounts exhibit lower probabilities of default and attrition, and have higher utilization rates, than non-relationship accounts. Dynamic information about changes in the behavior of a customer's other accounts at the same bank helps predict the behavior of the credit card account over time. These results imply that relationship banking offers significant potential benefits to banks: information the lender has at its disposal can be used to mitigate credit risk on the credit card account.