On the Importance of Prior Relationships in Bank Loans to Retail Customers

This paper analyzes the importance of retail consumers’ banking relationships for loan defaults using a unique, comprehensive dataset of over one million loans by savings banks in Germany. We find that loans of retail customers, who have a relationship with their savings bank prior to applying for a loan, default significantly less than customers with no prior relationship. We find relationships matter in different forms (transaction accounts, savings accounts, prior loans), in scope (credit and debit cards, credit lines), and depth (relationship length, utilization of credit line, money invested in savings account). Importantly, though, even the simplest forms.

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