Literature on the banking intermediation model (relationship vs. transactional) is largely focused on the bank-firm relationship aspect, highlighting the advantages and disadvantages both for the bank and the borrower. However, previous studies analyzing the implications of the quality of the loan portfolio resulting from the adoption of a particular model are very few (McNulty et al., 2007; Berger et al., 2010). Our analysis empirically verifies the existence of a relationship between the relationship-oriented model and the quality of the loan portfolio by using alternative measures to those used in existing literature to assess credit quality (Acharya, Hasan and Sauders, 2002; Cornet et. al., 2009). Bank size, functional distance and the intensity of the labour factor are used as proxies of the intermediation model, consistent with previous literature (Nakamura, 1993 and 1994; Udell, 2002; De Young et al., 2004; Berger et al., 2005; Berger and; Alessandrini et al., 2009). The analysis was conducted on a sample of 1,927 Italian banks over the 2006-2008 period and demonstrates the existence of a positive relationship between bank size, functional distance and the default rate, while confirming that bank profitability (ROA) negatively affects the default rate. The robustness test, implemented with the use of intermediate risk rating (doubtful loans rate, past due loans rate), confirms the results. On the base of these findings, some managerial implications are proposed.

Bank intermediation models and portfolio default rates: what's the relation?

COTUGNO, MATTEO;
2010

Abstract

Literature on the banking intermediation model (relationship vs. transactional) is largely focused on the bank-firm relationship aspect, highlighting the advantages and disadvantages both for the bank and the borrower. However, previous studies analyzing the implications of the quality of the loan portfolio resulting from the adoption of a particular model are very few (McNulty et al., 2007; Berger et al., 2010). Our analysis empirically verifies the existence of a relationship between the relationship-oriented model and the quality of the loan portfolio by using alternative measures to those used in existing literature to assess credit quality (Acharya, Hasan and Sauders, 2002; Cornet et. al., 2009). Bank size, functional distance and the intensity of the labour factor are used as proxies of the intermediation model, consistent with previous literature (Nakamura, 1993 and 1994; Udell, 2002; De Young et al., 2004; Berger et al., 2005; Berger and; Alessandrini et al., 2009). The analysis was conducted on a sample of 1,927 Italian banks over the 2006-2008 period and demonstrates the existence of a positive relationship between bank size, functional distance and the default rate, while confirming that bank profitability (ROA) negatively affects the default rate. The robustness test, implemented with the use of intermediate risk rating (doubtful loans rate, past due loans rate), confirms the results. On the base of these findings, some managerial implications are proposed.
2010
Bank intermediation models and portfolio default rates: what's the relation?
Cotugno, Matteo; V., Stefanelli; G., Torluccio
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3833699
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