Our speaker will be Artashes Karapety (BI Norwegian Business School).

He will give a talk on "To Ask or Not To Ask? Collateral versus Screening in Lending Relationships".

The talk will take place at 12:00-13:00 in seminar room D4.0.019.

Abstract: Using a comprehensive loan-level dataset, we study the impact of bank-firm relationships on collateral requirements both at the beginning of a relationship and over time. First, we exploit the EBA capital exercise, a quasi-natural shock that required increased capital requirements for a number of banking groups in the European Union. This experiment ceteris paribus makes secured lending cheaper vis-`a-vis unsecured lending for the affected banks, since secured loans require less regulatory capital. We find that relative to the control group, the affected banks engaged in more collateralized lending. However, we further find this effect is less pronounced for relationship borrowers. Second, extending the analysis to span nine years of data, we document that to loyal borrowers with long relationship potential, the bank is more likely to offer unsecured credit at the beginning of the relationship, complementing existing evidence that collateral requirements decline over the course of the relationship. The results suggest that relationship banking is important for alleviating credit access - bothduring hard times for banks, as well as at the beginning of borrowers' lives - especially for small, collateral-constrained businesses.