RelationshipBanking
15th VolumeJanuary 2013issue #2
Column I. ArnoldProtect relationship banks from internet grasshoppers
Interview J. ScheelbeekHead of Senior Relation-ship Banking Wholesale Clients Netherlands
Column P. FransesDo something useful for customers
p34p26 p37
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Relationship Banking
Preface
Dear reader,
Here it is, the second edition of the FSR Forum. We are already halfway through the academic
year but just started the year 2013. I would like to use this moment to wish you all the best for
this year.
The theme of the second edition of the FSR Forum is ‘Relationship Banking’. Relationship
banking is about offering customers services and financial products that are more than just
simple checking and savings accounts. Some products of relationship banking are safe deposit
boxes, insurance, credit cards, loans and investments. So relationship banking is all about
creating a long-term relationship with the clients. After this edition you will have a better
understanding of this interesting topic.
In this edition we will have three scientific articles that will contribute to the creation of a
better understanding of relationship banking. The first article is from mister Boot. He reviews
the role of banks as relationship lenders and the close relationships they develop with borrowers
over time. Such proximity between the bank and the borrower has been shown to facilitate
monitoring and screening and can overcome problems of asymmetric information which are
explained in the article.
The second article is written by madam Presbitero and mister Zazzarro. In this paper, they
suggest that the non-monotonic effect of market concentration on relationship lending is not
due to the degree of concentration per se, but to the interplay between market concentration
and the type of competitors operating in the local credit market. More precisely, their research
hypothesis is that what prevails between the investment and the strategic theories of
relationship lending depends on the organizational structure of the local banking system.
The third and last article is from mister Gopalan, mister Udell and mister Yerramilli. Given the
documented benefits of relationship lending, it is curious why firms switch banks so often. In
this article, they address this question using an extensive data set of 30,466 loans originated by
850 banks to 13,788 borrowers in the United States.
In this edition you will also find an interview with Jeroen Scheelbeek. Mister Scheelbeek is the
Head of Senior Relationship Banking Wholesale Clients Netherlands from the Rabobank
International. Mister Scheelbeek joined Rabobank in 1997, where he worked in various senior
positions in the areas of structured finance, corporate finance and relationship banking.
Furthermore, you will find two columns written by professors of the Erasmus university in this
FSR Forum. The first column is written by professor Arnold. In his column professor Arnold
writes about the differences between relationship banks and transaction banks and the consequence
the credit crisis has on these banks. The second column is written by professor Franses. In his
column he discusses that banks should do more for their customers and why this is useful.
fsrforum • volume 15 • issue #2
2 • Preface
Also this edition we have a column of mister Groeneveld. This time he wrote about retirement.
Mister Groeneveld explains the current pension structure and gives his opinion about this
structure.
The Newsupdate in the FSR Forum is as always related to the topic of the FSR Forum. In this
edition you will find that the subject of the Newsupdate is bank lending to businesses. In the
Newsupdate you can read all about the changes of bank lending and the bank credit each year.
In the remainder of this FSR Forum you will find an overview of our activities that took place.
You will find a short description of the Accountants Firms Day, Finance Day, Traders Trophy
and International Banking Cycle. Besides the activities for our members, we also had an active
members day. You can read all about this day for our committee members.
This edition ends with the FSR activity agenda. Here you can find all the events that are still to
come.
I would also like to make you aware of the fact, although we are just six months on the go, that
from now on we are going to look for our successors. So if you are interested or if you want to
know more about a board year at the FSR, please do not hesitate to contact us. You can also
come by our office to drink a coffee and ask all your questions.
I hope you will enjoy reading this edition of the FSR Forum and I wish to see you sometime at
one of our many activities.
Sincerely,
Maaike Lanphen
Editor in Chief FSR Forum
FSR board 2012-2013
Preface • 3
Table of contents
ColofonFSR FORUM appears five times a year and is an edition of the Financial Study Association RotterdamKvK Rotterdam no: V 40346422VAT no: NL 805159125 B01ISSN no: 1389-0913
15th volume, number 2, circulation 1900 copies
Editor in chiefMaaike Lanphen
Editorial department Petra van den AkkerRoija Rasuli
Editorial advisoryDr. M.B.J. SchautenDr. W.F.C. VerschoorDrs. R. Van der Wal RA
With the cooperation ofA.W.A. BootDrs. J.G. Groeneveld RA RVA.F. PresbiteroG. RadhakrishnanJ. ScheelbeekG.F. UdellV.YerramilliA. ZazzarroProf. Dr. I. ArnoldT. Moolenaar
R. van OvostM. Petutschnig
Editorial addressEditiorial office FSR Forum, Erasmus Universiteit Rotterdam Room H14-06Postbus 1738, 3000 DR RotterdamTel. 010 408 1830E-mail: [email protected]
Relationship Banking: What Do We Know?A.W.A. BootThe proliferation of transaction-oriented banking (trading) and direct funding available in the
financial markets has started to seriously challenge banks’ future as relationship bankers. This has
raised a host of interesting theoretical and empirical questions, the exploration of which has begun
to shape the modern literature on relationship banking that is briefly reviewed in this paper. 6
Competition and Relationship Lending: Friend or Foes?A.F. Presbitero and A. ZazzarroIn this paper, they suggest that the non-monotonic effect of market concentration on relationship
lending is not due to the degree of concentration per se, but to the interplay between market
concentration and the type of competitors operating in the local credit market. More precisely,
their research hypothesis is that what prevails between the investment and the strategic theories
of relationship lending depends on the organizational structure of the local banking system. 14
Why do firms switch banks?G. Radhakrishnan, G.F. Udell and V. YerramilliWhile most of the empirical literature has tried to highlight the benefits of lending relationships,
by focusing on the determinants of lending relationships, they highlight both the benefits and
costs of lending relationships. While lending relationships can benefit opaque borrowers by
enabling banks to reuse soft information, their paper highlights that there are attendant costs
too, especially if the existing relationship is with a small bank that may not be able to meet a
firm’s growing borrowing needs. 18
Relationship Banking
4 • Table of contents
fsrforum • volume 15 • issue #2
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Interview J. Scheelbeek 26
Head of Senior Relationship Banking Wholesale
Clients Netherlands
Column Joost Groeneveld PhD 32
Pensioenpremie betalen
Column professor 34
I. Arnold
Column professor 37
P. Franses
FSR News
Word of the Chairman 38
News Update 39
FSR former board member 40
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Activity reports 42
FSR Activity Calendar 48
Company PresentationsKPMG 24www.gaaan.nuMazars 30www.mazars.nl
Table of contents • 5
Relationship Banking: What Do We Know?
A.W.A. Boot
6 • Relationship Banking: What Do We Know?
fsrforum • volume 15 • issue #2
»
1. INTRODUCTIONThe modern literature on financial intermediation has primarily
focused on the role of banks as relationship lenders. In this
capacity, banks develop close relationships with borrowers
over time. Such proximity between the bank and the borrower
has been shown to facilitate monitoring and screening and
can overcome problems of asymmetric information. In this
view, relationships emerge as a prime source of an incumbent
bank’s comparative advantage over de novo lenders. In recent
years, however, the proliferation of transaction-oriented banking
(trading) and direct funding available in the financial markets
has started to seriously challenge banks’ future as relation-
ship bankers. This has raised a host of interesting theoretical
and empirical questions, the exploration of which has begun
to shape the modern literature on relationship banking that
is briefly reviewed in this paper.
This review is organized around three distinct sets of ques-
tions. First, what defines relationship banking and how
should it be viewed in the context of the modern literature
on financial intermediation? These questions help define the
origin and scope of relationship banking. We know that
information asymmetries are central to the literature on
financial intermediation as developed by Diamond (1984). In fact,
the raison d’eˆtre of banks may well be their role in mitigating
informational asymmetries. Relationship banking is most
directly aimed at resolving problems of asymmetric information.
What is interesting is that this way of looking at relationship
banking takes us beyond the traditional focus on commercial
bank lending; relationships play a critical role in investment
banking as well and in the activities of nonbank financial
intermediaries and private equity and debt markets.
The second set consists of questions about the source of the
benefits of relationship banking. Questions addressed here
include the following: What makes a relationship lender special?
And what are the value-enhancing contractual features of
relationship lending? While answering this we will see that
the free-rider problems (Grossman and Hart, 1980) are
resolved facilitating information reusability over time. This
encourages information production and monitoring by the
lender. The latter question addresses contractual features
that are possibly unique to relationship lending. We show
that relationship banking allows several special contractual
features, including flexibility and discretion, the extensive
use of covenants, and the inclusion of collateral require-
ments. We will show that these contractual features may
facilitate implicit long-term contracts and resolve agency
and information problems.
A third set consists of questions about the “dark side” of rela-
tionship banking (its costs). Is relationship banking especially
vulnerable to soft-budget constraint and hold-up problems?
And how can these problems be resolved? We will argue that
the flexibility of bank debt, in particular the possibilities for
renegotiation, may give rise to perverse ex ante incentives on
the part of borrowers (soft-budget- constraint problem).
Simultaneously, bank funding may lead to an information
monopoly for the bank, giving rise to a hold-up problem. A
potential solution for the soft-budget-constraint problem is
to grant the bank seniority and/or grant it collateral. This
could strengthen the bank’s bargaining position vis-a`-vis
the borrower and facilitate timely intervention. The latter
would benefit bondholders as well and point at a complemen-
tarity between bank debt and capital market funding. Resolu-
tions to the hold-up problem involve introducing competition
to mitigate the bilateral monopoly of the incumbent bank
with respect to the borrower. While introducing ex post com-
petition (e.g., by choosing for multiple simultaneous bank
relationships) may indeed reduce the hold-up problem, the
viability of relationship banking may suffer. In this context,
we also discuss particular contractual solutions that attenuate
the hold-up problem by limiting the discretion of the lender
(Von Thadden, 1995).
2. RELATIONSHIP BANKING IN THE CONTEXT OF THE MODERN THEORY OF FINANCIAL INTERMEDIATIONCommercial banks hold nonmarketable or illiquid assets that
are funded largely with deposits. There is typically little
uncertainty about the value of these deposits, which are often
withdraw able on demand. The liquidity of bank liabilities
stands in sharp contrast to that of their assets, reflecting the
banks’ raison d’eˆtre. By liquefying claims, banks may facilitate
the funding of projects that might otherwise be infeasible. In
financial intermediation theory, this is referred to as qualita-
tive asset transformation (see Greenbaum and Thakor (1995)):
a bank manages and absorbs risks (e.g., credit and liquidity
risks) by issuing claims on its total assets with different char-
acteristics from those encountered in its loan portfolio. The
banks’ assets are illiquid largely because of their information
Relationship Banking: What Do We Know? • 7
sensitivity. In originating and pricing loans, banks develop
proprietary information inhibiting the marketability of loans
(Bhattacharya and Thakor, 1993). Subsequent monitoring of
borrowers yields additional private information. The access
to information is inherently linked to relationship banking
and may point to a comparative advantage of banks.
We define relationship banking as the provision of financial
services by a financial intermediary that:
i. invests in obtaining customer-specific information, often
proprietary in nature; and
ii. evaluates the profitability of these investments through
multiple interactions with the same customer over time and/
or across products.
This definition centers around two critical dimensions: pro-
prietary information and multiple interactions. The definition
emphasizes that relationship banking involves borrower-spe-
cific—often proprietary—information available only to the
intermediary and the customer. This information is acquired
through screening and/or monitoring services, which can be
reused. In contrast, transaction-oriented banking focuses on
a single transaction with a customer, or multiple identical
transactions with various customers. In general, this means
that three conditions are met when relationship banking is
present (see Berger (1999)):
i. The intermediary gathers information beyond readily available
public information;
ii. Information gathering takes place over time through multiple
interactions with the borrower, often through the provision
of multiple financial services;
iii. The information remains confidential (proprietary).
Two caveats are in order. Relationship banking may also
include things that nonbank financial intermediaries do.
That is, in the context of lending, relationship lending is not
the exclusive domain of banks. For example, investment
banking facilitate more than transactions e.g, underwriting
public issues and assessments of credit and/or placement
risks.
Such activities move an investment bank’s role close to that
of a commercial bank engaged in lending; the processing and
absorption of risk may be facilitated by the proprietary infor-
mation and multiple interactions that are the hallmarks of
relationship banking. The full menu of financing options for
borrowers includes many other products with varying
degrees of relationships. With syndicated loans the lead bank
has a relationship with the borrower. Moreover, relationships
are important in the private equity and private debt markets
The upshot of this discussion is that the economic services
typically included as part of relationship banking are often
provided by a variety of nonbank financial intermediaries as
well. The more appropriate term to use then would be rela-
tionship intermediation. Because of the greater familiarity
people have with the term “relationship banking,” however,
we will continue to use this more commonly used term.
The second caveat is that relationship banking does not
involve only funding but includes also various other financial
services, e.g., letters of credit, deposits, check clearing, and
cash management services. The information that banks
obtain by offering multiple services to the same customer
may be of value in lending (Degryse and Van Cayseele, 2000).
Issues such as firm’s loan repayment capability can be
assessed. Thus, the scope of the relationship may affect the
bank’s comparative advantage in lending.
These arguments also put modern developments such as
securitization in the right context. Securitization is an inno-
vation in funding technology that some have characterized
as a proliferation of transaction-oriented market financing at
the expense of relationship-oriented bank lending. The eco-
nomics of securitization dictate that the originating bank
credit enhance the issue. Credit enhancement is typically
achieved through the provision of excess collateral or with a
letter of credit or other back-up facilities.
Alternatively, the originating bank keeps a portion of the
issue or sells the issue with implicit recourse (e.g., backed by
its reputation). The credit enhancement reduces the riskiness
of the asset-backed claims from the investors’ perspective,
and more importantly, it addresses conflicts of interest
rooted in the originating bank’s proprietary information.
With private information in possession of the originating
Relationship banking is most directly aimed at resolving problems of asymmetric information.
fsrforum • volume 15 • issue #2
8 • Relationship Banking: What Do We Know?
»
bank, the market requires assurance that the bank will not
exaggerate the quality of the assets it seeks to sell. As with a
warranty in product markets, credit enhancement discourages
misrepresentation by requiring the originator to absorb a
portion of the losses owing to default. Similarly, credit
enhancement signals to the market that the originator will
perform a thorough credit evaluation and an undiminished
monitoring effort.
Thus relationship banking does have a distinct added value.
They originate and service assets, while also processing the
attendant risk in order to sustain these activities. Banks will
therefore continue to screen and monitor borrowers, design
and price financial claims, and provide risk management ser-
vices. The competitive advantage of banks arising from their
proprietary information about their customers will be pre-
served, as will be the value of relationship banking.
3. HOW DOES RELATIONSHIP BANKING ADD VALUE?The first benefit is relationship banking can facilitate a
Pareto-improving exchange of information between the bank
and the borrower. With relationship banking, a borrower
might be inclined to reveal more information than in a trans-
action-oriented interaction and the lender might have
stronger incentives to invest in producing information. The
other benefit is related to the fact that relationship banking
accommodates several special contractual features that can
improve welfare:
i. Relationship lending leaves room for flexibility and discretion
in contracts that permits the utilization of subtle, non-con-
tractable information, thereby facilitating implicit long term
contracting.
ii. Relationship lending may include extensive covenants that
allow for a better control of potential conflicts of interest.
iii. Relationship lending may involve collateral (e.g., as in
asset-based lending) that needs to be monitored. In fact, the
need for such lending and monitoring may make the proximity
of a relationship financier essential; otherwise, lending might
not occur at all.
iv. Relationship lending could permit the funding of loans that
are not profitable for the bank from a short-term perspective
but may be profitable if the relationship with the borrower
lasts long enough. As we shall see, the reason for this is that
long relationships make possible value-enhancing intertem-
poral transfers in loan pricing.
The first benefit related to information exchange is the
release of proprietary information to the bank that would not
have disseminated to the market (Bhattacharya and Chiesa,
1995). The bank keeps competitive information confidential.
The adverse selection problem is resolved as banks are indis-
pensable in overcoming problems of asymmetric information
A bank might also have better incentives to invest in infor-
mation production about the borrower because of its role as
an enduring and dominant lender. The high costs outweigh
the valuable intertemporal information that is reused accom-
panying a long relationship with the borrower.
The benefits related to the contractual features that relation-
ship lending accommodates are linked to the flexibility that
relationship banking can offer. The bank–borrower relation-
ship is typically less rigid than a capital market funding
arrangement, in the sense that renegotiation of contract
terms is easier. This greater flexibility with relationship
finance can improve welfare because discretion has value
(e.g., Boot et al., 1993). This is part of the important ongoing
discussion in economic theory about rules versus discretion,
where discretion allows decision making based on more
subtle—potentially non-contractable—information. A bank–
borrower relationship is in many ways a mutual commit-
ment based on trust and respect. This may allow implicit—
non-enforceable—long-term contracting with a bank in
circumstances in which information asymmetries and the
non-contractability of various pieces of information would
rule out long-term access to alternative capital market fund-
ing sources as well as explicit long-term commitments by
banks. Therefore, both the bank and the borrower may real-
ize that their relationship produces value unattainable
through other means and thus should be fostered.
Another contractual benefit of relationship banking is
directly related to the structure of the explicit contracts that
banks can write. Bank loan contracts include extensive cov-
enants to guide the bank–borrower relationship. Covenants
help control potential conflicts of interest and reduce agency
costs, which can be renegotiated. This is dependent of the
Relationship Banking: What Do We Know? • 9
bargaining position of the bank vis-a`-vis the borrower,
which in turn may depend on the seniority of bank debt. In
reality, bank loans are often senior to other debt. With sen-
iority, a bank is likely to become less willing to renegotiate in
a way that requires it to relinquish a portion of its claim. The
reason is that the more senior the bank’s claim is, the less
sensitive its value will be to the total value of the firm. This
will weaken the bank’s incentive to give in to a reduction in
the size of its claim in the hope of increasing its value
through an increase in total firm value.
The next contractual issue is that bank loan contracts can
easily accommodate collateral requirements. An extensive
theoretical literature shows that collateral can mitigate
moral hazard and adverse selection problems in loan con-
tracting (see Chan and Thakor, 1987). However, collateral is
likely to be effective only if its value can be monitored (see
Rajan and Winton, 1995). The monitoring of pledged collat-
eral might crucially depend on the proximity between bank
and borrower that comes with relationship banking.
The final contractual issue is the smoothing of contract
terms, including losses for the bank in the short term that is
recouped later in the relationship. Research supporting that
credit subsidies reduce moral hazard problems and informa-
tion frictions that banks face in lending to such borrowers
(Petersen and Rajan, 1995). However, subsidies impose losses
on the bank. If losses expected to be offset by rents in the
future then funds could be granted. The point is that without
access to subsidized credit early in their lives, de novo bor-
rowers would pose such serious adverse selection and moral
hazard problems that no bank would lend to them. Relation-
ship lending makes such subsidies and accompanying loans
feasible because the proprietary information generated
during the relationship produces rents for the bank later in
the relationship and permits the early losses to be offset.
The arguments so far focus on distinct benefits coming from
relationship lending, and may explain why bank loans and
other private debt type arrangements play an important role
in funding corporations. What has not been emphasized is
the potential complementarity between bank loans and
public debt funding sources. Hoshi et al. (1993) show that
bank lending exposes borrowers to monitoring, which may
serve as a certification device that facilitates simultaneous
capital market funding. However, Diamond (1991) shows
that borrowers may want to borrow first from banks in order
to establish sufficient credibility before accessing the capital
markets. Again banks provide certification and monitoring.
Once the borrower is “established,” it switches to capital
market funding. There is a sequential complementarity
between bank and capital market funding. A positive correla-
tion is shown between the value of relationship banking and
the quality of the lender (Chemmanur and Fulghieri, 1994).
The overall conclusion is that relationship lending can pave
the way for more informative credit-contracting decisions
based on a better exchange of information, and also increase
the availability of credit to information-sensitive borrowers.
But, as we discuss in the next section, relationship banking
has its costs as well.
4. WHAT ARE THE COSTS OF RELATIONSHIP BANKING?There are two primary costs of relationship banking: the soft-
budget constraint problem and the hold-up problem. Con-
sider the soft-budget constraint problem first. The key ques-
tion is whether a bank can credibly deny additional credit
when problems arise. That is, a borrower on the verge of
defaulting may approach the bank for more credit to forestall
default. While a de novo lender would not lend to this bor-
rower, a bank that has already loaned money may well decide
to extend further credit in the hope of recovering its previous
loan. The problem is that borrowers who realize that they
can renegotiate their contracts ex post like this may have
perverse incentives ex ante (Bolton and Scharfstein, 1996;
Dewatripont and Maskin, 1995). That is, if renegotiation of a
loan agreement is too easy, a borrower may exert insufficient
effort in preventing a bad outcome from happening. Granting
seniority to the bank may provide amelioration. If the bank’s
debt claim is the most senior, it can more credibly intervene
in the decision process of the borrower when it believes that
its interests are in danger. Why? Consider the following
example. Suppose the bank believes that the firm’s strategy is
flawed, or that a restructuring is needed. Can the bank inter-
vene? This is not obvious because the borrower can be con-
vinced that the bank will not enforce its demands. For example,
the bank could threaten to call the loan, but the borrower—
anticipating adverse consequences not only for itself but also
for the value of the bank’s claim—realizes that the bank may
not want to carry out such a threat. This is because carrying
fsrforum • volume 15 • issue #2
10 • Relationship Banking: What Do We Know?
Thus relationship banking does have a distinct added value.
out the threat adversely affects the value of the bank’s (risky) claim on the borrower; thus, sub-
game perfection is violated. However, when the bank has seniority, the senior claim can insu-
late the bank from these undesirable consequences, because the value of this claim is less sen-
sitive to the firm’s total value and hence the bank’s action. It could now credibly threaten to call
the loan, and this threat helps in imposing its wishes upon the borrower. This argument shows
that seniority of bank debt may facilitate timely intervention.
One could ask whether it is really necessary to give the bank this role. Why not allocate the task
of timely intervention and the necessary seniority to bondholders?
Observe that bondholders are subject to more severe information asymmetries because they
are not specialized in screening and monitoring to the same extent as the bank and are gener-
ally more dispersed (i.e., have smaller stakes, which causes free-rider problems). Bondholders
may thus find it optimal to grant bank debt priority over their own claims, and in doing so, del-
egate the timely intervention activity to the bank. Consequently, the borrower may reduce its
total funding cost by accessing both the bank-credit market and the financial market. This is
another example of the complementarity between bank financing and capital market funding.
The next issue is the hold-up problem, possibly another dark side of relationship banking. The
proprietary information about borrowers that banks obtain as part of their relationships may
give them an information monopoly. In this way, banks could charge (ex post) high loan inter-
est rates (see Sharpe (1990) and Rajan (1992)). The threat of being “locked in,” or information-
ally captured by the bank, may make the borrower reluctant to borrow from the bank. Potentially
valuable investment opportunities may then be lost. Alternatively, firms may opt for multiple
bank relationships. This may reduce the information monopoly of any one bank, but possibly at
a cost. Ongena and Smith (2000) show that multiple bank relationships indeed reduce the
hold-up problem, but worsen the availability of credit. One explanation is that multiple relation-
ships can reduce the value of information acquisition to any one individual bank (see Thakor
(1996)) or cause too much competition ex post, which may discourage lending to “young”
firms (see our discussion in Section 5.1).
Von Thadden’s (1995) contribution shows that a long-term line of credit with a termination
clause can balance the costs and benefits of the hold-up problem and the effects of ex post com-
petition. More specifically, such a line of credit generally stipulates that the lender may termi-
nate the lending relationship but, if it chooses to continue it, it should do so at prespecified
terms. This combination of a termination clause—which generates the hold-up problem in the
first place—and continuation only at prespecified terms gives the lender limited bargaining
power. In this way, the severity of the hold-up problem can be optimally managed and multiple
bank relationships may not be needed.
5. COMPETITIVE ISSUES AND EMPIRICAL EVIDENCE
5.1. Competitive IssuesWe have argued that relationships may facilitate a continuous flow of information between
debtor and creditor that could guarantee uninterrupted access to funding. Some, however, »Relationship Banking: What Do We Know? • 11
believe that more competition threatens these relationships, while others have recently argued
the exact opposite. The question then is: how does elevated interbank competition or more
intense competition from the financial market affect relationship banking?
Let us first consider the viewpoint that more competition means less relationship banking. The
argument here is that with more competition borrowers might be tempted to switch to other
banks or to the financial market. When banks anticipate a shorter expected lifespan of their
relationships, they may respond by reducing their relationship-specific investments. Interest-
ingly, shorter or weaker relationships may then become a self-fulfilling prophecy.
A complementary negative effect of competition on relationship banking may come from the
impact of competition on the intertemporal pricing of loans. Increased credit market competi-
tion could impose constraints on the ability of borrowers and lenders to share surpluses inter-
temporally. In particular, it becomes more difficult for banks to “subsidize” borrowers in earlier
periods in return for a share of the rents in the future. Thus, the funding role for banks that
Petersen and Rajan (1995) see in the case of young corporations—see the discussion in Section
3—may no longer be sustainable in the face of sufficiently high competition. This indicates
that excessive interbank competition ex post may discourage bank lending ex ante. An alterna-
tive view is that competition may also elevate the importance of relationships as a distinct com-
petitive edge. Pure price competition pressures bank profit margins. Boot and Thakor (2000)
show that a relationship orientation can alleviate these competitive pressures because a rela-
tionship banking orientation can make a bank more unique relative to competitors. Thus, a
more competitive environment may encourage banks to become more client-driven and cus-
tomize services, thus focusing more on relationship banking.
5.2. Empirical EvidenceThe costs and benefits of relationship banking have been subjected to extensive empirical aca-
demic scrutiny. There is an announcement effect of bank loan agreements on stock prices
(James (1987) and Lummer and McConnell (1989)) suggesting the special role of banks. Based
on supporting studies we can conclude that bank involvement has a distinct added value.
Though the sources of value-added are not uncovered but it is shown that the existence of a
bank–borrower relationship increases firm value. The strength of a bank– borrower relation-
ship, measured by the duration of the bank–lender relationship, has provided several interesting
insights. First, the duration of the bank–borrower relationship positively affects the availability
of credit (Petersen and Rajan, 1994; Berger and Udell, 1995). Second, contract terms generally
improve for the borrower over the life of the relationship: interest rates and collateral require-
ments fall. These results are consistent with the idea that relationship banking lubricates
value-enhancing exchange of information and that the longer the duration of the relationship,
the greater the information exchange. Third, there is evidence of intertemporal smoothing of
contract terms that could also contribute to the increased availability of funds to “young” firms
(Petersen and Rajan, 1994, 1995).
The improvement in contract terms over the relationship is possibly evidence against the hold-
up problem, since this problem should worsen credit terms over time. This does not mean that
the hold-up problem is absent, but rather that it is dominated by other factors. Interestingly, in
fsrforum • volume 15 • issue #2
12 • Relationship Banking: What Do We Know?
In particular, existing empirical work is virtually silent on identifying the precise sources of value in relationship banking.
the European context, Degryse and Van Cayseele (2000) find
the opposite: contract terms deteriorate with longer duration
of the relationship suggesting that the hold-up problem is
more dominant in Europe. One explanation might be that
the banking sector in Europe is more consolidated and fewer
credit alternatives exist for borrowers (e.g., the financial
markets are less developed). Kracaw and Zenner (1998) of-
fer an alternative explanation: they show that “interlocking”
directorships—quite prevalent in Europe—between banks
and firms may intensify hold-up problems. Other empirical
research has explicitly looked at resolutions to the hold-up
problem. One solution is that firms opt for multiple bank
relationships. Ongena and Smith (2000) show that this may
indeed reduce the hold-up problem, but can worsen the
availability of credit. A plausible explanation is that the pres-
ence of multiple relationships reduces the value of informa-
tion acquisition to any one individual bank. Alternatively, the
presence of multiple lenders causes “too much” competition
ex post that can discourage lending to young firms (Petersen
and Rajan, 1994). Houston and James (1999), following
Hoshi et al.’s (1990) work on cash flow constraints and invest-
ment, refine these arguments by focusing on the size of the
anticipated funding needs. They show that the desirability of
multiple bank relationships crucially depends on these funding
needs. Their empirical evidence indicates that firms with a
single bank are at a disadvantage (“cash flow constrained”)
only when large funding needs are anticipated. In the case of
more modest funding needs, single bank firms are less cash
flow constrained than firms with multiple bank relations are.
The discussion in this section gives substantial evidence in
support of the hypothesis that relationship banking adds
value. An importan t next step is to design empirical tests
that can differentiate between the various costs and benefits.
In particular, existing empirical work is virtually silent on
identifying the precise sources of value in relationship bank-
ing.
6. CONCLUSIONRelationship banking has become an important area of scien-
tific inquiry. This review has focused primarily on the theo-
retical contributions but has also added key empirical
insights. The general conclusion is that relationship banking
has a distinct role to play and can be a value-enhancing inter-
mediation activity. Much more research is needed, however.
Existing work falls short in that it has not measured the precise
sources of the added value of relationship banking. In the
increasingly competitive environment of banking, the differ-
entiation of distinct costs and benefits (and the empirical veri-
fication of it) is crucial in order to predict the viability and
scale of relationship banking in the future.
Of great importance is also the effect of the restructuring in
the financial services industry on the viability of relationship
banking. How does bank consolidation affect relationship
banking? The empirical research so far has focused on small
business lending and finds that mergers and acquisitions
involving at least one large bank reduce lending to small
businesses, whereas mergers and acquisitions between small
financial institutions have a positive impact on small business
lending (see Berger (1999)). We need to understand what
explains these results. On an even more general level we
would like to disentangle the advantages and disadvantages
of bank-based systems (e.g., Germany) and market-based
financial systems (the Anglo-Saxon countries). The focus of
this review on understanding the costs and benefits of rela-
tionship banking is undoubtedly helpful for this evaluation.
But the relative importance of the various costs and benefits
of relationship banking may differ between bank-based and
market-based systems. For example, the empirical evidence
presented in Section 5.2 points at potentially more severe
hold-up problems in banking in Europe than in the US.
These advances are promising, but cannot hide the fact that
even at a fairly basic level, we are just beginning to learn
about the real benefits of bank-customer relationships. Sub-
stantial ambiguity remains. As one banker recently put it:
“you may think that you have a relationship, but the customer
may consider it an annoying sequence of transactions.”
Relationship Banking: What Do We Know? • 13
Competition and Relationship Lending: Friend or Foes?
By A.F. Presbitero and A. Zazzarro
14 • Competition and Relationship Lending: Friend or Foes?
fsrforum • volume 15 • issue #2
1. IntroductionTo this date, the European Union (EU) has not been successful
in implementing any serious cooperation or harmonization
in corporate taxation. The European Commission (EC)
already called for a harmonization of corporate tax systems
in the 1960’s. Subsequently the European Parliament (EP)
has produced several Working Papers on the subject of tax
coordination.
Research indicates that full tax harmonization would yield
the biggest welfare gain. However, the burden on national
sovereignty would suggest it unlikely to be implemented in
the EU as a whole. An Enhanced Cooperation Agreement
(ECA) enables the most ambitious Member States (MS) to
deepen cooperation between themselves. This might be the
only way to achieve full harmonization amongst the more
willing MS. Therefore, our research addresses the following:
will the introduction of a European Union Corporate Income
Tax, based on an Enhanced Cooperation Agreement, lead to
an increase in welfare within the participating MS and
thereby create incentives for other MS to join at a later time?
In section 2 we will shortly address the characteristics of the
Common Consolidated Corporate Tax Base (CCCTB) and the
European Union Corporate Income Tax (EUCIT). Then, in
section 3 we will give a clear explanation of the distinctive
characteristics of an ECA. Section 4 will give an understanding
of the existing studies on the implementation of the CCCTB
amongst all or a subgroup of MS and the implementation of
the EUCIT. It also addresses the possible Enhanced Cooperation
Union for Corporate Taxation (ECUCT). Section 5 concludes.
2. Possible reformsCorporate taxation in Europe has been the focus of the EC for
several years. In the 2001 EC Report on Company Taxation in
the Internal Market, the Commission indicated various company
tax obstacles prevailing in the EU, such as: high compliance
and administrative costs and the distortion of the international
allocation of capital. To a large extent, these shortcomings of
the current system originate from the co-existence of 27
different tax systems, which requires separate tax accounting
for every MS where a company operates. To reduce these
obstacles, the EC has been researching the possibility of
harmonizing the corporate tax systems in the EU.
The most developed concept of harmonization is referred to
as the CCCTB. Under this system, the EU-wide consolidated
profits of each multinational company (MNC) will be allo-
cated to MS by an apportionment formula. Companies that
are eligible and opt in, would then be taxed on their consoli-
dated taxable profits earned across the different MS. Each
state will subsequently tax the allocated profit at its own cor-
porate tax rate. Under the CCCTB, the compliance and
administrative costs of MNC are reduced, it leads to an alle-
viation of double taxation and it opens up the possibility of
cross border loss compensation. However, the precise impact
on welfare and revenues of a MS strongly depends on the
choice of the apportionment formula. It will certainly be difficult
to agree upon the CCCTB amongst the 27 MS, especially in
view of the unanimous voting requirement on direct tax matters.
Another possibility is implementing the EUCIT. This system
replaces all the corporate income taxes within the EU and
thus leads to base and rate harmonization. This necessitates
that countries lose their sovereign rights on corporate tax
matters altogether. It will, however, lead to a truly “single
level playing field”.
3. Enhanced Cooperation AgreementTo reduce tax competition there is an ongoing plea for estab-
lishing a single corporate tax zone. As direct taxation is still
subject to unanimous voting in the European Council, not
much progress has been made. The EU has reacted to these
developments by introducing a so-called Enhanced Coopera-
tion Agreement (ECA). An ECA is a procedure wherein a
minimum of nine EU MS are allowed to establish advanced
integration or cooperation in an area within EU structures,
but without the other EU members actually being involved.
Hence, an ECA enables the most ambitious MS to deepen
cooperation between themselves. The option of an ECA
amongst a subgroup could facilitate progress in integration,
as not all MS might be willing or able to participate in it yet.
A successful performance of such a subgroup may motivate
other MS to participate in the ECA at a later stage.
4. Conclusions and coordination effect of the CCCTB and the EUCIT
Looking at the research done, it is shown that corporate tax
base harmonization yields a welfare gain for Europe, though
small. Amongst the individual MS it gives very different
Our research hypothesis is that what prevails between the investment and the strategic theories of relationship lending depends on the organizational structure of the local banking system
»Competition and Relationship Lending: Friend or Foes?• 15
results, some will benefit while others will not. The simulations ignore the reduction of com-
pliance costs, which are expected to increase welfare gains even more.
The CCCTB proposal consists of an optional common tax code, besides the existing national tax
codes. As it would be optional, differences in treatment would remain. Under full consolidation
of the tax base, profit shifting within the EU is no longer feasible. However, multinationals can
still respond to tax rate differentials that might create incentives to reallocate. This implies that
tax competition does not disappear under consolidation, but will take a different form and it
may even cause further competition in tax rates in the EU. This offers a rationale for rate har-
monization, in addition to base harmonization. Also profit shifting to low-tax countries that are
not part of the EU will still be possible, which means that the individual EU MS will have to
maintain separate accounting for profits earned outside the EU. Therefore the amount of cost
reduction under the CCCTB may be overestimated.
By implementing the EUCIT system, which is mandatory and includes rate harmonization,
some of the distortions caused by the CCCTB are eliminated. The welfare gain under the EUCIT
is much larger in comparison to the welfare gain under the CCCTB system.
CCCTB and EUCIT have the same problems of arriving at a common tax code. A whole new tax
system would have to be devised. Furthermore, as the EUCIT is compulsory, this necessitates
that countries lose their sovereign rights on corporate tax matters altogether.
Although it seems unlikely that harmonization will be implemented in all 27 EU MS simulta-
neously, a small group of MS may find it in their interest to do so under an ECA. A coalition of
winning countries reduces the welfare gain and may induce a process of adverse selection,
which destroys the possibility of cooperation. Furthermore, a coalition of similar countries (in
terms of the size of their multinational sector) is more feasible in achieving agreement and is
actually preferred by those countries over a EU-wide reform. Countries with similar policies are
more likely to form a coalition, as the costs of cooperation are relatively minimal. Another
example of a coalition is one between larger countries. This yields larger common gains from
cooperation compared to a coalition between small countries, since the spillovers internalized
by a coalition of small countries are much smaller than spillovers internalized by larger countries.
Moreover, small MS may prefer to remain sovereign as they benefit more from tax-rate cuts.
These simulations are based on the compulsory CCCTB regime. Although the consequences for
individual MS under full harmonization most likely will not correspond to the CCCTB simula-
tions, it remains clear that for Europe as a whole, the EUCIT is more beneficial. Therefore it
seems probable that under the EUCIT a group of countries will benefit from an ECA without
having a significant effect for the opt-outs. Although it is possible that this group would be similar
to the ones examined in the studies, this cannot be said with the utmost certainty. Further
research is necessary.
Following the ECA an Enhanced Cooperation Union for Corporate Taxation (ECUCT) can be
formed. Such an ECUCT could have possible positive or negative pulling-effects on the opt-outs.
fsrforum • volume 15 • issue #2
16 • Competition and Relationship Lending: Friend or Foes?
The opt-outs can benefit from the experimentation and learn the pros and cons of cooperative
tax harmonization by the ECUCT members. The possibility that enhanced cooperation in one
field, by one group of countries, will extend to other areas and will thus benefit other countries,
has already been put forward by a number of authors. Cross-border economic activities within
the ECUCT are expected to increase with harmonization. If cross-country differences in effective
tax rates would be removed this will lead to a more efficient allocation of capital across the
ECUCT, creating an incentive for countries to be a part of the ECUCT. In case lower compliance
costs yield additional welfare gains, this also increases the likelihood that countries opt in the
system.
One of the fears is that enhanced cooperation may lead to a permanent divide between insiders
and outsiders. Furthermore outsiders can choose explicitly to remain outside the ECUCT for
reasons of tax competition or national tax preferences.
5. ConclusionIn our paper we explored the possibility of a European Union Corporate Income Tax. We started
by shortly addressing the characteristics of the CCCTB and the EUCIT. Secondly, we explained
the possibility of Enhanced Cooperation as it does not seem feasible that all EU members would
agree to one corporate tax system in the near future. After this, we shortly addressed a few studies
of interest to our research and applied this in our argumentation on the European Union Cor-
porate Income tax, more specifically the Enhanced Cooperation Union for Corporate Taxation.
All studies addressed conclude that harmonization, whether by CCCTB or EUCIT, is likely to
produce a welfare gain for Europe, although probably modest. It is acknowledged that not all
countries may benefit. If some countries are worse off, it will be difficult to agree upon harmo-
nization among the EU MS. The biggest gain is expected from a reduction in compliance costs,
which no studies were able to incorporate in their research.
A potential way out is enhanced cooperation whereby a subgroup of EU MS coordinates their
policies. However, a question which remains is whether or not opted out countries could grad-
ually be enticed to participate in closer cooperation at a later stage. This cannot be determined
due to the different results stemming from different factors which should be taken into account
such as which group of countries and the choice of the rates and bases, amongst other factors.
It seems most probable that MS of similar size or with a similar multinational sector will
deepen cooperation, since they will have similar tax systems. We expect that MNC will prefer to
be allocated within the ECA due to the reduction in compliance costs and other benefits men-
tioned in our paper, which will create an incentive for the opt outs to join the ECA.
As a final remark it is relevant to inform the reader that as of the 16th of March 2011 the Euro-
pean Commission has published its long awaited draft directive of the optional CCCTB.
Although the reader knows our standing point on this proposal, it could be a stalking horse for
closer tax cooperation in Europe.
To establish whether relationship lending can survive competition is essentially an empirical matter.
Competition and Relationship Lending: Friend or Foes? • 17
Why do firms switch banks?
By Radhakrishnan,G., Udell, G.F., and V. Yerramilli
18 • Why do firms switch banks?
fsrforum • volume 15 • issue #2
1. IntroductionA large and growing literature in finance shows that firms
benefit from banking relationships. It is argued that these
benefits arise mainly because of the ability of banks to pro-
duce “soft” information – information that cannot be easily
observed by or transferred to outsiders – about their borrowers
that they can use to make future credit decisions (Leland and
Pyle (1977), Fama (1985), Diamond (1984), Diamond (1991),
etc.). Moreover, relationship banks also benefit their borrowers
by smoothing loan prices across multiple loans in response
to interest rate shocks (Berlin and Mester (1998)). In practice,
however, it is very common for firms to switch to new banks
for their repeat loans (i.e., their continuing credit needs). We
find that 44% of the repeat loans in our sample of bank loans
involve new bank-borrower relationships. Given the documented
benefits of relationship lending, it is curious as to why firms
switch banks so often. In this paper, we address this question
using an extensive data set of 30,466 loans originated by 850
banks to 13,788 borrowers in the United States.
Existing literature highlights a few potential reasons for why
firms may switch banks. It is argued that small and large
banks possess unique strengths and may potentially specialize
in lending to different classes of borrowers (Berger et al.
(2005), Kano et al. (2006)); small banks have a better ability
to process soft information and are more likely to lend to
informationally problematic borrowers, while large banks
specialize in syndicated lending to larger firms. Similarly,
borrowing firms too differ in terms of how they access bank
financing (Hadlock and James (2002)); firms with severe
asymmetric information problems are more likely to choose
bank loans. So it is possible that firms enter into new banking
relationships with different classes of banks in response to
their changing borrowing needs, changing information quality,
etc. Bank-borrower relationships are also under constant
threat from competing lenders that may provide a superior
product or a lower price (Petersen and Rajan (1995) and Boot
and Thakor (2000)). Thus increased competition may also
result in firms switching banks. Firms may also switch banks
due to changes at their existing relationship bank such as
mergers, restructuring etc. We examine the influence of
firm, bank and bank market characteristics on a firm’s pro-
pensity to switch to a new bank to distinguish between these
theories.
We obtain our loan data from the Reuters Loan Pricing Cor-
poration’s (LPC) Dealscan database. Dealscan provides detailed
loan information, including the identity of the borrower and
the lender, for loans raised over a sufficiently long period of
time (1986–2005), allowing us to analyze how lending rela-
tionships evolve over time. We define relationships as
between the borrower and the lead lender in a syndicate. This
is because prior research has shown that the lead lender is
the one responsible for monitoring borrowers. We examine
firms’ repeat loans, and our main variable of interest is
whether a firm switches to a new lead lender for its repeat
loan or not. We combine the loan data with firm-level data
from Compustat and bank-level1 data from the Call Reports
to analyze how firm characteristics and bank characteristics
influence the firm’s decision to switch to a new bank for its
repeat loan.
To summarize, while most of the empirical literature has
tried to highlight the benefits of lending relationships, by
focusing on the determinants of lending relationships, we
highlight both the benefits and costs of lending relation-
ships. While lending relationships can benefit opaque bor-
rowers by enabling banks to reuse soft information, our
paper highlights that there are attendant costs too, especially
if the existing relationship is with a small bank that may not
be able to meet a firm’s growing borrowing needs. The benefits
of borrowing from relationship banks may dominate the
costs for the very small and informationally opaque borrowers,
such as the small non-Compustat firms in our sample. How-
ever, information considerations do not prevent larger firms
– many of which are traded publicly, have debt ratings and
are tracked by financial analysts – from switching to new
banks. For these firms, the borrowing constraints with current
relationship banks outweigh the information benefits of con-
tinuing current relationships. This, we believe, is the main
contribution of our paper to the literature on lending rela-
tionships.
1.1 HypothesesOur primary objective is to determine why firms switch to
new banks for their repeat loans, instead of sticking to the
banks that they have borrowed from the in the past, i.e., their
relationship banks. We analyze how this decision is influ-
enced by firm characteristics, bank characteristics, and bank
market characteristics.
The benefits of borrowing from relationship banks may dominate the costs for the very small and informationally opaque borrowers, such as the small non-Compustat firms in our sample
»Why do firms switch banks? • 19
(Berger et al. (2005)). So as firms grow and their information
environment improves, they are more likely to want to build
new relationships with larger banks in order to better meet
their changing needs for credit and other capital market ser-
vices. This can be viewed as a”graduation hypothesis” similar
to firms graduating to more reputable investment banks,
auditors, etc. (see Krigman et al (2001) for instance). The
graduation hypothesis suggests that firms that do not have
existing relationships with large banks are not only more
likely to switch banks, but are also more likely to switch to a
large bank to increase their credit capacity. However, since
small banks are likely to have an advantage in lending to
opaque borrowers, this effect should be less pronounced for
the informationally opaque firms.
A firm’s decision to switch to a new bank could also be influenced
by bank market characteristics such as market size, level of
concentration, etc. Since large and small banks populate different
markets, the graduation hypothesis would predict that firms
are more likely to switch from small, non-metropolitan bank
markets to large, metropolitan bank markets. Since banking
relationships are more likely to endure in concentrated
banking markets (Petersen and Rajan (1995)), the probability
of a firm switching to a new bank should be higher if the firm’s
existing banks are in competitive bank markets.
The decision of a firm to switch to a new bank could also be
driven by other supply side factors like merger and acquisition
activity involving existing banks, deposit growth at banks, etc.
It is possible that following a merger, the consolidated banking
entity is unwilling or unable to service some of its existing
borrowers, forcing them to switch to other banks (Berger et
al. (1998)). Further, since small banks have been shown to have
an advantage in lending to firms facing information problems,
we expect the merger effect to be stronger for information-
problematic firms. On the other hand, when a bank experiences
a high deposit growth, it might be more willing to lend to
new firms that it hasn’t lent to in the past. So we expect the
probability of a new bank-borrower relationship to be positively
related to the deposit growth at the new bank. For a similar
reason as outlined above, we expect this deposit growth effect
to be weaker for information problematic firms.
Finally, it is possible that firms switch banks because they
expect to obtain more favorable loan terms than they can
Theoretical literature suggests that if the information
regarding the firm is soft, i.e., if it cannot be easily be
observed by or transferred to outside lenders, then the firm
would benefit by continuing to borrow from its existing rela-
tionship bank. This is because the relationship bank can use
its superior information to make better informed credit deci-
sions than outside banks. So as per this soft information
hypothesis, firms that are informationally opaque should be
less likely to switch to new banks.
To test this hypothesis, we use the firm’s size and the pres-
ence of the firm’s financial information on the Compustat
database to proxy for the firm’s information environment.
The idea here is that the non-Compustat firms, i.e., firms for
which financial information is not available on the Compustat
database, are likely to be more opaque than the Compustat
firms. For firms that are covered by Compustat, we also use
firm age, presence of a credit rating, number of financial analysts
tracking the firm, discretionary accruals and asset tangibility
as additional proxies for the firm’s information quality.
Chemmanur and Fulghieri (1994) argue that a borrower’s
choice of a lender depends on the lender’s reputation for
making the “right” liquidation versus continuation decision
when confronted with firms in financial distress; lenders
acquire such a reputation over time. Their argument sug-
gests that a borrower who is concerned about the possibility
of financial distress would find it optimal to borrow from a
relationship bank, even if such borrowing entails higher
costs. We use a firm’s Altman Z-score8 and leverage as proxies
for the probability of financial distress to test if firms closer
to distress are less likely to switch to new banks.
To promote portfolio diversification, bank regulators impose
lending limits on the extent of exposure to individual bor-
rowers (or related borrowers) based on the size of the bank’s
capital. Many banks self-impose internal lending limits that
are even more stringent than regulator-imposed lending
limits. The presence of such limits implies that as borrower
loan needs increase, they are more likely to want to build
new relationships with larger banks.
Further, recent literature has highlighted that small and
large banks differ in their ability to process soft information,
and may specialize in lending to different classes of borrowers
Smallest and the most opaque firms in our sample, and the largest firms in our sample are least likely to switch to a new bank.
fsrforum • volume 15 • issue #2
20 • Why do firms switch banks?
where the subscript i indicates the borrower and the sub-
script t indicates the deal number for a particular borrower.
The dependent variable yit is New Relationship, a dummy
variable that identifies instances when the borrower borrows
from a new lead bank. As mentioned earlier, we estimate this
regression on the 2nd to 4th deal of a borrower in our
sample. We exclude the first deal because we will not be able
construct the variable New Relationship for the first deal, as
there is no past history to compare the borrower-lead
arranger pair with. We also exclude the deals beyond the 4th
deal, because apart from the very large borrowers, very few
borrowers have more than 4 deals in our sample. Non Com-
pustat is a dummy variable that identifies firms for which we
do not have financial data in Compustat, and Size is the loga-
rithm of the firm’s sales, as reported on Dealscan. We use
both Non Compustat and Size as proxies for the firm’s infor-
mation quality, because firms covered by Compustat and
large firms are less likely to suffer from information prob-
lems. We use the additional term Size2 to test whether the
relationship between the probability of switching to a new
bank and size is non-linear. In all specifications, the standard
errors are robust and clustered at individual borrower level.
Overall, the results in Panel A suggest that the most informa-
tionally opaque firms in our sample, i.e., the non-Compustat
firms, are less likely to switch to a new bank for their repeat
deals. This could be because, given that they are opaque, they
benefit by staying with their existing relationship banks.
Alternatively, it could be because they are unable to switch to
new banks, because new banks are unwilling to lend to such
highly opaque firms.
Interestingly, when we use size as an additional proxy for
information quality, we find that not only the smallest firms
but also the largest firms in our sample are more likely to
stay with their existing banks.
Next, we turn our attention to other firm characteristics. In
Panel B of Table III, we repeat the regression on the sub-sample
of borrowers for which we have financial data in the Compustat
database. To measure the information environment of the
firm, we include Log(Assets), the log of the book value of
total assets of the firm. Since larger firms are less likely to
suffer from asymmetric information problems, our hypothesis
would predict a positive coefficient on Log(Assets). We also
obtain from their existing banks. We focus on two important
variables: the loan yield and the loan amount. We expect that
firms switch to new banks because they paid too high a price
on their previous loan, or because they obtained too low an
amount on their previous loan. We also expect that firms that
switched to a new bank obtained a lower yield and/ or a
higher loan amount than those that did not.
2. ResultsWe now proceed to the formal multivariate tests of our
hypothesis. Our results are organized as follows. In Section
2.1, we examine the impact of borrower characteristics on its
propensity to switch to a new bank for its repeat deals. We
document a non-monotonic relationship between a firm’s
information quality and its propensity to switch to a new
bank. We show that the smallest and the most opaque firms
in our sample, and the largest firms in our sample are least
likely to switch to a new bank. In Section 2.2, we examine the
impact of bank characteristics and bank market characteristics
on a firm’s propensity to enter into new banking relation-
ships. We find results that are supportive of the graduation
hypothesis that firms are more likely to switch from small
banks to large banks, and from small bank markets to large
bank markets. Finally, in Section 2.3, we examine the moti-
vations of borrowers in forming new banking relationships.
Our main result is that, after controlling for the endogeneity
in the decision to switch, borrowers that switched to a new
bank obtained higher loan amounts than those that did not.
This finding suggests that firms form new banking relation-
ships in order to escape borrowing constraints at their existing
banks, and offers additional support to the graduation hypothesis.
2.1 Firm characteristics and the propensity to switch to a new bankIn the introduction we had hypothesized that information-
ally opaque firms and firms facing financial distress are more
likely to stay with their existing banks. To test these hypoth-
eses, we begin by examining the impact of firm characteris-
tics on firms’ propensity to enter into new banking relation-
ships. We estimate the following panel model for all the firms
in our sample of repeat deals:
yit = F(_0 + _1Non Compustati + _2Sizei + _3Size2i + Con-
trols), (1) »Why do firms switch banks? • 21
firms, which may be thought of as informationally opaque,
are more likely to stay with their existing banks. Interest-
ingly, however, the soft information hypothesis does not hold
uniformly across the information spectrum. For instance,
among our sub-sample of Compustat firms, we show that
firms that are informationally more opaque (small firms,
firms without a credit rating, firms that are tracked by fewer
analysts) are more likely to switch to new banks, instead of
staying with their existing banks as predicted by the soft
information hypothesis.
2.2 The impact of bank and bank market characteristics on banking relationships
In the introduction, we hypothesized that a firm’s decision to
switch to a new bank could also be influenced by bank char-
acteristics and bank market characteristics. We now examine
how bank characteristics and bank market characteristics
influence firms’ propensity to form new banking relationships.
We begin by estimating regression (1) for the entire sample
of firms, after including bank and bank market characteristics.
We include characteristics of the lead bank for the current
loan, and also the characteristics of the lead banks with
whom the borrower has existing relationships with. The
results of this regression are reported in Panel A of Table IV.
The results in Column (1) confirm our finding that firms are
less likely to switch to new banks if they are already borrowing
from a large bank, and that firms are more likely to switch to a
large bank. The results in Column (2) show that firms are more
likely to switch into larger banking markets and are less likely to
switch banks if they are already borrowing from a large banking
market; similarly the results in Column (3) show that firms are
more likely to switch into markets where large banks have a
greater market share, and are less likely to switch banks if they
are already borrowing from a large-bank dominated market.
These results on the sub-sample of firms with Compustat data
confirm our earlier results obtained on the full sample of firms,
and provide strong support for the graduation hypothesis.
2.2.1 The impact of bank mergersIn Table IV (B), we estimate the impact of a merger involving
the relationship bank on a firm’s propensity to form new
lending relationships. In Column (1) of Table IV (B), we estimate
(1) after including a dummy variable Merger, which takes a
include Industry Leverage, the median leverage among all
firms with the same four digit SIC code as the borrower.
Industry Leverage is likely to measure the expected leverage
of the firm, with a higher value indicating firms that depend
to a greater extent on debt capital. Since firms with higher
leverage ratios are more likely to experience financial distress
in future, our hypothesis that firms facing the probability of
financial distress are more likely to stay with their existing
banks predicts a negative coefficient on Industry Leverage.
R&D/TA is the ratio of R&D expenditure to total assets. This
is likely to measure the fraction of firm value in future
growth options, with a higher number indicating firms that
can benefit to a greater extent from relationships.
The negative coefficient on Log(Assets) in Column (2) indi-
cates that smaller firms are more likely to form new banks
relationships by switching to new banks, while larger firms
are more likely to stick to their existing relationship banks.
This is consistent with the univariate results presented in
Section 1.2, and contradicts the soft information hypothesis
which predicts that firms with poorer information quality
are more likely to stay with their existing relationship banks.
The negative coefficient on Debt Repayment indicates that
loan deals whose main purpose is to repay debt are less likely
to involve new banks. The signs of coefficients on Syndicate
and Long Time Between Deals are as obtained with the full
sample of firms in Panel A.
Overall, the results in Panel B indicate that larger firms,
firms with bond ratings, and firms with a greater analyst fol-
lowing are more likely to repeat relationships while firms
with the opposite characteristics are more likely to enter into
new relationships. Our results are both statistically and eco-
nomically significant, and reject the hypothesis that the
more opaque firms are more likely to stay with their existing
banks. The coefficient in Column (1) indicates that a one
standard deviation increase in firm size, reduces the proba-
bility of switching to a new bank by 8.2%.
To summarize our findings in Table III, we find a non-monot-
onic relationship between a firm’s information quality and its
propensity to form new banking relationships – the most
opaque firms and the most transparent firms in our sample
are least likely to switch to a new bank. Consistent with the
soft information hypothesis, we do find that non-Compustat
fsrforum • volume 15 • issue #2
22 • Why do firms switch banks?
impact of firm characteristics, bank characteristics and bank
market characteristics on a firm’s propensity to enter into a
new banking relationship.
We document a non-monotonic relationship between a firm’s
information quality and its propensity to switch to a new bank:
the most opaque firms and the most transparent firms are less
likely to switch to new banks. Using a firm’s total sales as a proxy
for its information quality, we document an inverted U-shaped
relationship between a firm’s information quality and its propen-
sity to switch to a new bank. These findings suggest that while
there are benefits to borrowing from relationship banks, such as
ability to reuse soft information, there are attendant costs as well.
The soft-information benefits may dominate for the very small
and informationally opaque borrowers, such as the small non-
Compustat firms in our sample, while the potential costs may
dominate for the larger firms – many of which are traded publicly,
have debt ratings and are tracked by financial analysts.
We also show that firms that switch banks mainly switch
from small banks to large banks, and from small bank markets
to large bank markets; interestingly, firms that are highly
opaque are not only less likely to switch banks, but are also
less likely to switch to a large bank. Finally, firms that switch
to new banks obtain larger loan amounts than those that do
not. We do not find sufficient evidence to suggest that firms
switch banks in order to obtain a better rate on their loans.
Overall, our results suggest that the main motivation of
firms in forming new banking relationships is to escape bor-
rowing constraints at their existing banks.
Our findings suggest avenues for future research. One possible
avenue is to examine how firms and relationship banks smooth
loan contract terms over repeat interactions. For instance, it
is plausible that firms switch to new banks in anticipation of
long-term future benefits, such as fewer financial constraints,
access to a wider array of banking services, etc.
In other words, the benefits of switching to a new bank might not
be realized immediately following the switch. If this is true, it might
explain why we do not find evidence of lower yields immediately fol-
lowing a switch to a new bank. On the other hand, it is also possible
that banks offer attractive terms to entice new borrowers with the
hope of extracting a higher price in the future. This is an open ques-
tion which we plan to address in our future research.
value 1 if any of the lead banks for a firm’s previous deals
undergoes a merger. The positive coefficient on Merger in
Column (1) indicates that firms are more likely to switch to
a new bank if one of their existing relationship banks under-
goes a merger. This result supports the hypothesis that
mergers destroy bank-borrower relationships.
In Column (2), we repeat the regression after including the
dummy variable, Large Bank Merger, that identifies instances
when the relationship bank that merged was a Large Bank.
We include this term to see if there is any differential impact
of mergers across the bank size spectrum. The results indicate
that the size of the merging bank does not affect the propen-
sity of firms to switch to a new bank, following a merger
involving an existing relationship bank.
In Column (3), we repeat the regression after including interac-
tion terms between Non Compustat and Merger & Large Bank
Merger. The results indicate that firms without Compustat data
do not have any differential propensity to switch banks conse-
quent to mergers involving their relationship banks. In Column
(4), we examine if the borrower’s decision to switch to a new
bank is influenced by the deposit growth at the new bank. We do
this to test our hypothesis that when a bank experiences high
deposit growth, it might be more willing to lend to new firms
that it hasn’t lent to in the past. To test this hypothesis, we
repeat our regression after including Deposit Growth, the rate
of growth of deposits for the current lead arranger during the
quarter preceding the loan origination. The positive sign on
Deposit Growth in Column (4) confirms our hypothesis; new
relationships are more likely after a bank has experienced high
growth in deposits. In Column (5), we repeat the regression in
(4) after including an additional interaction term between Non
Compustat and Deposit Growth. Our intention is to discover if
banks that have experienced high growth in deposits also solicit
informationally opaque firms. The negative coefficient on the
interaction term Non Compustat*Deposit Growth suggests that
that is not the case. Even in the face of high deposit growth,
banks are less likely to solicit Non Compustat firms to form new
relationships.
3. Concluding RemarksIn this paper, we examine the repeat borrowings of firms in
the US private debt market to understand how firms’ banking
relationships evolve over time. Specifically, we examine the
The main motivation of firms in forming new banking relationships is to escape borrowing constraints at their existing banks.
Why do firms switch banks? • 23
Van scriptanttot trainee
w w w.ga a an.nU
KPMG
Recruitment Centre
Laan van Langerhuize 1
1186 DS Amstelveen
(020) 656 7162
www.gaaan.nu
een groep studenten in de afstudeerfase bij elkaar zit,
kun je met elkaar sparren en informatie uitwisselen.
Ook kreeg ik een coach toegewezen die mij wegwijs
heeft gemaakt in de organisatie en waarbij ik met al
mijn vragen terechtkon.
Je krijgt de tijd en mogelijkheden om het bedrijf, de
werkzaamheden en de collega’s te leren kennen.
KPMG organiseert bijvoorbeeld diverse activiteiten
voor scriptanten, zoals de Landelijke Scriptanten
dagen, etentjes, borrels, etc. Daarnaast heb ik via
KPMG kunnen deelnemen aan golflessen en kon ik
binnen een paar maanden mijn GVB halen.”
En nu aan de slag als trainee?
“Ik kijk terug op een geslaagde scriptiestage bij KPMG.
Mijn Master is met succes afgerond en ik heb een
geweldige werkgever leren kennen. Sinds september
werk ik fulltime als trainee; ik ben sindsdien al veel
leuke ervaringen rijker. Ik werk in wekelijks wisselende
teams aan opdrachten voor verschillende bedrijven.
Hierdoor leer je snel veel collega’s kennen en is het
werk erg divers. Mijn scriptie is dus een mooie eerste
carrièrestap geweest en ik kan iedereen dan ook
aanraden om met KPMG kennis te maken en te gaan
voor je scriptie!”
Wil jij ook je scriptie bij KPMG schrijven? Neem dan
contact op met het KPMG Recruitment Centre via
[email protected] of schrijf je in op www.gaaan.nu.
Kijk voor tips op facebook.com/kpmgscriptiecoach.
Stijn van der Heijden (27) heeft zijn scriptie bij KPMG
geschreven en is onlangs gestart als trainee in
Rotterdam. We vroegen Stijn naar zijn stageervaring
en start bij KPMG.
Waarom heb je ervoor gekozen om je scriptie bij
een bedrijf te schrijven?
“Ik heb na mijn Bachelor Economie de Master
Accounting, Auditing and Control gedaan. Tijdens een
inhousedag ontdekte ik de mogelijkheden om je scriptie
bij een groot accountancykantoor te schrijven.
Naast de theoretische kennis die ik in ruim vijf jaar
had opgedaan, wilde ik graag praktijkervaring op
doen. Ik ben daarom alvast op zoek gegaan naar een
potentiële werkgever om daar mijn scriptie te schrijven.”
Waarom KPMG?
“Tijdens mijn studententijd was ik erg actief als
wedstrijdroeier bij ARSR Skadi. Ik zocht een werkgever
waar je mensen vindt met dezelfde drive en passie.
Tijdens mijn kennismaking met KPMG vielen de
gedrevenheid en nononsensementaliteit mij op.
Niet alleen mooie verhalen, maar vooral daden.
Ook de Talentpool van KPMG vind ik erg aansprekend.
Dit houdt in dat je eerst een heel divers klantenpakket
hebt en dat je daarna een keuze maakt voor de sector
waarin je je gaat specialiseren. Voor mij voldoende
redenen om mijn scriptie bij KPMG te schrijven.”
Hoe heb je de scriptiestage ervaren?
“Ik kreeg alle ruimte om mijn eigen plan te trekken.
Zo kon ik het schrijven aan mijn scriptie afwisselen
met het opdoen van praktijkervaring. Doordat je met
“Ik heb een
geweldIge
werkgever
leren
kennen.”
© 2011 KPMG N.V., alle rechten voorbehouden.
-04459_Interview_210x297mm_OF.indd 1 27-10-2011 14:44:29
Van scriptanttot trainee
w w w.ga a an.nU
KPMG
Recruitment Centre
Laan van Langerhuize 1
1186 DS Amstelveen
(020) 656 7162
www.gaaan.nu
een groep studenten in de afstudeerfase bij elkaar zit,
kun je met elkaar sparren en informatie uitwisselen.
Ook kreeg ik een coach toegewezen die mij wegwijs
heeft gemaakt in de organisatie en waarbij ik met al
mijn vragen terechtkon.
Je krijgt de tijd en mogelijkheden om het bedrijf, de
werkzaamheden en de collega’s te leren kennen.
KPMG organiseert bijvoorbeeld diverse activiteiten
voor scriptanten, zoals de Landelijke Scriptanten
dagen, etentjes, borrels, etc. Daarnaast heb ik via
KPMG kunnen deelnemen aan golflessen en kon ik
binnen een paar maanden mijn GVB halen.”
En nu aan de slag als trainee?
“Ik kijk terug op een geslaagde scriptiestage bij KPMG.
Mijn Master is met succes afgerond en ik heb een
geweldige werkgever leren kennen. Sinds september
werk ik fulltime als trainee; ik ben sindsdien al veel
leuke ervaringen rijker. Ik werk in wekelijks wisselende
teams aan opdrachten voor verschillende bedrijven.
Hierdoor leer je snel veel collega’s kennen en is het
werk erg divers. Mijn scriptie is dus een mooie eerste
carrièrestap geweest en ik kan iedereen dan ook
aanraden om met KPMG kennis te maken en te gaan
voor je scriptie!”
Wil jij ook je scriptie bij KPMG schrijven? Neem dan
contact op met het KPMG Recruitment Centre via
[email protected] of schrijf je in op www.gaaan.nu.
Kijk voor tips op facebook.com/kpmgscriptiecoach.
Stijn van der Heijden (27) heeft zijn scriptie bij KPMG
geschreven en is onlangs gestart als trainee in
Rotterdam. We vroegen Stijn naar zijn stageervaring
en start bij KPMG.
Waarom heb je ervoor gekozen om je scriptie bij
een bedrijf te schrijven?
“Ik heb na mijn Bachelor Economie de Master
Accounting, Auditing and Control gedaan. Tijdens een
inhousedag ontdekte ik de mogelijkheden om je scriptie
bij een groot accountancykantoor te schrijven.
Naast de theoretische kennis die ik in ruim vijf jaar
had opgedaan, wilde ik graag praktijkervaring op
doen. Ik ben daarom alvast op zoek gegaan naar een
potentiële werkgever om daar mijn scriptie te schrijven.”
Waarom KPMG?
“Tijdens mijn studententijd was ik erg actief als
wedstrijdroeier bij ARSR Skadi. Ik zocht een werkgever
waar je mensen vindt met dezelfde drive en passie.
Tijdens mijn kennismaking met KPMG vielen de
gedrevenheid en nononsensementaliteit mij op.
Niet alleen mooie verhalen, maar vooral daden.
Ook de Talentpool van KPMG vind ik erg aansprekend.
Dit houdt in dat je eerst een heel divers klantenpakket
hebt en dat je daarna een keuze maakt voor de sector
waarin je je gaat specialiseren. Voor mij voldoende
redenen om mijn scriptie bij KPMG te schrijven.”
Hoe heb je de scriptiestage ervaren?
“Ik kreeg alle ruimte om mijn eigen plan te trekken.
Zo kon ik het schrijven aan mijn scriptie afwisselen
met het opdoen van praktijkervaring. Doordat je met
“Ik heb een
geweldIge
werkgever
leren
kennen.”
© 2011 KPMG N.V., alle rechten voorbehouden.
-04459_Interview_210x297mm_OF.indd 1 27-10-2011 14:44:29
© 2011 KPMG N.V., alle rechten voorbehouden. W W W.GA A AN.NU
Kijk voor meer tips op facebook.com/kpmgscriptiecoach.Of beter nog: schrijf je scriptie bij KPMG.
Scriptietip # 3:
“ Bepaal eerst het raamwerk van je scriptie, dan hebje houvast bij het schrijven.”
EEN INHOUDS-OPGAVE IS HET HALVE WERK
-04445_210x297mm_adv_Scriptanten_alle.indd 3 16-11-2011 13:28:36
Interview with Jeroen ScheelbeekHead of Senior Relationship Banking Wholesale Clients Netherlands
Roija Rasuli and Maaike Lanphen
Jeroen Scheelbeek joined Rabobank in 1997, where he worked in various senior positions in the areas of structured finance, corporate finance and relation-ship banking. Over the last 15 years at Rabobank, Jeroen has been working in an international context on a wide range of structured investment and funding transactions such as leveraged buy-outs, acquisition finance and financial engineering transactions. Jeroen has considerable experience in IPO’s, M&A transactions, complex financings and restructurings.
Prior to joining Rabobank, Jeroen Scheelbeek worked in Corporate Finance for NIBC and Aegon in the Netherlands.
He graduated in Business Economics at the Free University of Amsterdam, specializing in Finance, Accounting, Marketing, and Management & Strategy.
What does relationship banking mean for Rabobank?We attach great value to this function, as it is our aim to be a ‘single point of contact’ for our
clients. The essence of our business is that we not only want to sell individual products, but
want to offer our clients total solutions. In contrast to a few years back, when each department
had its own targets, causing frictions and inefficiencies within our bank and for the client of
course. The switch towards total, integrated, solutions for our clients is an efficient and pro-
ductive way of doing business, increasing our focus towards relationship banking has led us to
enhance our core business even more. It is important to realize that the clients’ interest should
be the main focus and that our solutions should address their needs. Banking is a financial service
and you should always keep in mind that service means to “serve a client”.
Is relationship banking more important for the national or the international level?Our market share and strong position in the Netherlands helps us to benchmark the model for
the international market. First and foremost, it is our aim to be the primary bank for our Dutch
clients; to offer our services to the national locations of our Dutch clientele and offering our
banking network close to them. Secondly, we support these clients in their international
expansion by providing services internationally in 43 countries via over 600 offices.
Due to the increase of capital market funding there is more competition, has this caused relationship banking to be the focal point?These are two distinct things because every service and product business has to deal with com-
petition. In the Netherlands, we have grown rapidly because of our own investments and other
factors such as the distress of some of our competitors. What we have also seen is that other
international banks, which were active in the Netherlands, have started to focus on their core
markets e.g. the German and French banks. Regulations such as Basel III and several governments
require banks to shrink in size. This has implications for the business models of banks which
works accordingly: banks have become more selective in the issuance of credit and critical
focus on core customers has increased, in effect leading customers to look at alternative funding
sources like the capital markets. There is a lot of competition in the latter market for instance
from investment banks, however they focus primarily on very large companies.
How does Rabobank cope with this, Basel III requires banks to shrink but what about the international ambition?We have only a limited influence on international regulations of course so this is something we
simply have to adapt to. But then again, we do not need to grow our balance sheet indefinitely.
In general, a banking sector should have a size that is proportionate to the gross domestic product
of a country. Iceland is a clear example here; the banking sector was a number of times bigger
than the GDP of the country and that caused huge problems. But this does not mean that
Rabobank cannot grow; there are other opportunities to explore. For example, two years ago we
established a US Private Placement team specializing in arranging the issuance of US bonds of
institutional investors e.g. pension funds and insurance firms. This formed a gateway for our
current clientele base to explore other sources of financing. Our solutions based mindset
assures that we can interact with our clients on various levels e.g. by being a broker; connecting
our clients with institutional investors. This is crucial as there will be a ‘threshold’ on the level
bank financing dependent upon the situation, what you see is that there is a shift in financing
fsrforum • volume 15 • issue #2
26 • Interview
»
tenors and concerned parties. The institutional investors will finance the long-term loans (ten
to up to thirty years) and banks will be providing short-term financing (e.g. up to ten years).
The economic crisis has made banks cautious, how does this affect young and innovative firms that require funding?In the Netherlands, we have a very decentralized organization which means that we offer local
solutions via 139 local member banks that have skilled people, are highly specialized and are
highly autonomous in their decision making processes. This has a lot of advantages, such as
that decisions are made fast and clients can interact with their local banks quickly. However,
due to the current economic circumstances we have to be critical towards new business propo-
sitions. For example, if your business model is highly dependent on the construction industry
or on consumer spending then funding such a model will be discussed and challenged, considering
the current circumstances and economic forecasts. We have a lot of internal research resources,
which we can offer to clients, assisting them to thoroughly analyze their business plans before
switching to the implementation stage. As a bank we are open to new ideas and new clients, but
we also have to protect our clients against suboptimal investments.
Does Rabobank intervene in the budgeting process of a firm? Or its strategy? Taking into account the challenging environment we are in.Firstly, we do not intervene with the budgeting and management processes of our clients,
because that is the responsibility of the client’s management team. Our approach is to test the
strategy and the financial forecasts by our own sector research groups. Besides these sector
analysts, we have our macro economists like the Chief Economist Wim Boonstra who provide
their own views on the world. For example, within the general industries sector, we keep track
of the trends in the market and make forecasts. If a client shows us completely different budgets
that may perhaps be too optimistic, then we enter into a dialogue to try to get a better under-
standing. We will never try to run a business by intervening in the strategic process. But it is
our best intention to share our market intelligence with our clients so that both parties can
reach mutual agreement at a certain stage. However, when we see that both parties have completely
different visions of the business and its prospects, then that may not be the best basis to enter
into a long-term relationship.
Banks are seen as the monitoring tool of firms, very convenient for bondholders of course. But how do you maintain your objectivity? How do you make sure that the relationship with the client does not get too close which may affect the renewal of the loan?As a bank we base our judgments on the information available in the markets. We have teams
that scrutinize the publicly available information. As a trusted professional institution we are
obliged to maintain objective in our judgment at every step. If we would not do so, then our
long-term continuity could be at risk as banking is based on trust.
Do you think it would be good for clients to mandatorily switch from banks for example like what we see in the Big 4 firms Shakeup regulated by the EU?Accounting firms provide regulatory auditing services and commercial advisory services. The
combination of that could have led the EU regulators to decide upon such a rule. But most of
As a bank we base our judgments on the information available in the markets.
Interview • 27
our large corporate clients, among them many listed companies, are already financed by a
group of banks via syndicated loans. This group of banks is composed by our clients and may
vary over time. In other words, our clients already determine with which banks they want to do
business. The introduction of such EU regulation would be of less relevant for banks. Publicly
quoted companies are obliged to provide the details on the credit agreements made with their
banks in their annual reports hence information can be easily retrieved. A company has chosen
its banks for various reasons but it always has the freedom to switch bank, so such mandatory
‘shakeup’ would not be necessary for the bank sector.
Is it important to have a long-term relationship with your clients?Yes, we strive for a long-term relationship, as we believe that in order to understand and offer
tailor made integral solutions a long-term vision is required. There may be situations when a
client is going through a difficult year, at those moments only long-term relationships, based
on a thorough understanding, work well. Some of my clients are in the semi-conductor industry,
which has a very volatile and complex business model that requires a deep understanding of the
markets with a strong sense of commitment. At Rabobank, we aim to build relationships with
a long-term vision.
But can a relationship be based on a ‘click’ or do you judge by looking at the potential of a firm?As mentioned earlier, we aim for long-term relationships and strive to maintain those. Of
course, there are relationships where the ‘click’ is missing and banking is a peoples’ business,
but then you try to figure out what could be the reason. The firm could possibly have other banks
it is having close relationships with and it does not see a reason to expand its banking group.
It may be better not to push too hard and it will be put to rest. However, as soon as something
changes within that organization e.g. a change of structure or management, we will again try
to build up the relationship with ‘new’ potentials.
Does more competition result in less Relationship Banking?No, more competition means a higher need for relationship banking because you do not want
to compete only by offering products at the lowest price but on the know-how, timing and
expertise we have to offer. Our policies support that idea, as mentioned before, it is crucial
within our field to maintain long-term relations because only then we can offer customized
solutions to our clients. The bank sector is largely dependent on people, systems and trust, and
you have to invest in all of these components over time, so that a solid foundation can be build.
What kind of approach do you have towards your work? Is there a lot of rivalry among bankers and attracting clients?I have been in this position for eight years now and have established strong and short commu-
nication lines with our clients. Obviously, it is not custom to wait and watch if new clients will
appear on your doorstep. It is crucial to be pro-active and engage with clients on various
including having dialogues, exchanging thoughts/visions, at board level. At Rabobank our
approach is to invite our clients and potential clients to exchange know-how, information and
strategies. Thus, attracting new and maintaining current relationships needs to happen on a
very interactive level, a vision that is very close to the core of the Rabobank Group.
fsrforum • volume 15 • issue #2
28 • Interview
Cash flows of firms have become morevolatile and unpredictable.*
Is Relationship Banking important for small firms or large corporations?I think that it is important for every firm regardless of the type or size of a corporation. Such
company requires attention and support on a regular basis. However, large multinationals not
only tend to have a complex business model but also their local subsidiaries can require a lot of
attention and support, so the number of people and therefore contacts increases exponentially.
But for both types the need for relationship banking should not be underestimated, as this is a
service industry.
Have banks become stricter with their covenants due to the crisis? Taking the attentive approach. The covenants we agree upon generally do not change because of the challenging economic
environment, but the monitoring of those covenants has become more important. Covenants
should be seen as tools that identify potential problems in an early stage and thus offer an
opportunity to discuss potential pitfalls with your client. Cash flows of firms have become more
volatile and unpredictable and covenants can be used as an early warning tool. Before the crisis
refinancing of firms would take place two à three months before the end of the tenor, but now
we start discussions around twelve months in advance. This indicates the impact of the attentive
approach, which is in the interest of the clients as well.
Are banks more careful with providing new loans? Firms have to grow and invest, how does this affect the relationship with your clients?For good business models we will provide funding and for our current clientele base there is
sufficient capital available. In the Netherlands, our client base can count on support from us
but, internationally, besides assisting our Dutch clients ‘expansion, we focus at Food and Agri-
culture industries, as that is part of our strategy.
Has the crisis damaged the image of banks?When we talk about the crisis it is, in my opinion, important to make a distinction between the
credit crisis, which started in the US housing markets, and the current economic crisis.
Grooming the two, under one name would be simplifying the situation. However, the image of
banks has been put to test and some have been hit harder than others. Rabobank has weathered
the crisis relatively well and we did not need support from the Dutch government. But as a
sector we are hit hard, which has lead to many new regulations (including Basel III and new
taxes) hence as banking sector we need to be conscious on the actions we take and our role in
society. It means we need to be transparent in the work that we do, serving our clients, rather
than being arrogant about it. Looking at some international banks, for example in the UK or
US, the main purpose is to create value for the shareholders and employees as opposed to sharing
the clients’ vision. This mentality distorts the role and image a bank should have in society, but
this is something that I believe does not generally apply to banks in the Netherlands and
definitely not to the Rabobank group. But as a banker you have to be conscious of the views and
opinions of the community you work and live in.
Interview • 29
Rules don’t rule Regels. In de accountancy heb je ermee te maken. Maar dat betekent niet dat wij ons door
regels laten regeren. Bij Mazars vinden we dat ze geen rem mogen zijn op onze inventiviteit.
Integendeel. Wij helpen bedrijven zich verder te ontwikkelen. Vooruitkijken vinden we even
zinvol als achteruitkijken. Creëren is net zo belangrijk als controleren. We verschuilen ons niet
achter regels, maar gebruiken ze. Rules don’t rule staat voor onze mentaliteit. Onze accountants
en fiscalisten durven over grenzen te kijken. In welke functie je bij ons ook aan de slag gaat, je
werkt altijd samen met andere disciplines. In teamverband ga je verder dan het geijkte. Dat
maakt je werk boeiend en inspirerend.
Onze ontwikkeling Het daadkrachtige en breed opererende Paardekooper & Hoffman fuseerde met het interna-
tionale Mazars-netwerk. Hieruit ontstond Mazars, nu uitgegroeid tot een van de meest markante
spelers in accountancy. Mazars heeft niet de ambitie de grootste accountantsorganisatie te
worden, maar wil zich onderscheiden door zijn actieve opstelling, brede dienstverlening, hoog-
waardige kennis en effectieve, inventieve oplossingen. Als netwerkorganisatie zijn we een
vertrouwde partner voor een toenemend aantal cliënten die Europa als hun thuismarkt zien en
behoefte hebben aan een andere mentaliteit in accountancy. Wereldwijd werken er 13.000
professionals bij Mazars in 69 verschillende landen. In Nederland hebben we 10 kantoren.
Durf jij verder te gaan met Mazars?Ga verder met Mazars. Het is een opdracht én een belofte. Voor onszelf, voor onze medewerkers
en voor onze cliënten. Een belofte die we waarmaken door een bredere en actievere dienstver-
lening op het gebied van accountancy, fiscale dienstverlening en management consultancy. Bij
Mazars vinden we leren erg belangrijk. Kennis en inventiviteit zijn de peilers van onze dienst-
verlening. Daarom krijg je bij ons de ruimte om je eigen weg te vinden. Vind jij dat regels nooit
het excuus mogen zijn om niet meer na te denken? Ben jij klaar om je te ontplooien in een
organisatie waarin niet alles vastligt? Neem dan contact op met Evelien Appeldoorn: 088 277 15
50 of [email protected]. Of kijk op www.mazars.nl.
Bedrijfspresentatie Mazarsfsrforum • volume 15 • issue #2
30 • Companypresentation
In gesprek met Matthias Freeke (22) senior assistant OMB Financial Audit (kantoor Rotterdam)
Waarom koos je voor Mazars?Sinds het voorjaar van 2009 ben ik werkzaam bij Mazars, na zes jaar middelbare school wilde ik
graag gaan werken en gelijktijdig leren. Het duale studietraject accountancy van de Nyenrode
Universiteit sprak mij dan ook erg aan. Toen ik mij ging oriënteren op de arbeidsmarkt en bij
verschillende accountantsorganisaties solliciteerde sprong de flyer van Mazars er voor mij uit
op een positieve manier. Mijn beeld van een accountant was toch de typisch grijze, saaie, niet-
creatieve muis in pak. De flyer van Mazars was juist creatief, wel in grijs-kleurige tinten, maar
totaal niet saai!
Rules don’t rule volgens Matthias:De slogan ‘Rules don’t rule’ moet niet te letterlijk worden genomen. Binnen de accountancy
zijn er natuurlijk regels waar wij ons aan dienen te houden, maar Mazars probeert de werk-
nemer ook vrij te laten en stimuleert hen te blijven na- en meedenken. Voor mij houdt ‘Rules
don’t rule’ in dat ik naast mijn normale controlewerkzaamheden ook actief betrokken ben bij
business development. Ik vind het erg leuk om betrokken te zijn bij het binnen halen van
nieuwe klanten en heb de afgelopen jaren al meegewerkt aan vele offertes, voorbereiding van
offertegesprekken en het bedenken van nieuwe ideeën om nieuwe klanten te benaderen. Juist
deze werkzaamheden naast mijn controlewerkzaamheden geven veel plezier aan het werken bij
Mazars.
Companypresentation • 31
Al moet daar misschien bij worden opgemerkt dat 15% op
het einde best veel is. Vooral waar tegenwoordig kinderen
vaak pas op latere leeftijd van de ouders worden geboren en
studiebeurzen minder rijk gezaaid zijn. Moderne ouders zijn
met 65 jaar nog niet uit de financiële zorgen.
Maar het valt misschien mee. Het salaris stijgt in het algemeen.
Ik ben uitgegaan van 2% reële stijging per jaar. En dan is voor
een identieke uitkomst van e610,82 een doorsneepremie van
4% voldoende. Maar op basis van het hogere middenloon
resulteert dat in slechts 5,5 pensioenjaren. Als je weer op 9
pensioenjaren wil uitkomen, moet 7% als doorsneepremie
worden betaald. Voor een zelfde eindwaarde zou bij een jaar-
lijkse reële groei van 2% bij Goudswaard een 25-jarige 4,87%
premie moeten betalen en de 65-jarige 23,4%. Dat laatste
lijkt me een zeer zware last. Mijn persoonlijke voorkeur zou
zijn om gedurende 40 jaar dan toch maar telkens 7% premie
te betalen.
Nu zal niet elke carrière zo gladjes en zo voorspelbaar verlo-
pen als ik in mijn cijfervoorbeeld heb aangenomen. Verras-
sende promoties kunnen het middenloon opstuwen. Daarte-
gen helpt een uitkering op basis van beschikbare premies.
Wat mij betreft is dat als oplossing van ongelijkheid veel aan-
trekkelijker dan het voorstel van Goudswaard.
Goudswaard lijkt de volgtijdelijkheid van ouderdom uit het
oog te verliezen. Pensioengerechtigden zijn namelijk ooit
jong geweest. De oudere heeft zelf dat nadeel als jongere al
achter de rug. Dat “nadeel”wordt gecompenseerd met het
“voordeel” op latere leeftijd. Omgekeerd: de jongere van nu
moet zich niet vergelijken met de oudere van nu maar met
deze oudere toen ook hij nog jong was. En dan zal er niet
meer zoveel ongelijkheid overblijven.
Aanvankelijk werkte een mij bekende 65-plusser in het voor-
uitzicht van een pensioen op basis van eindloon. Naar hij
zich meent te herinneren was dat pensioen welvaartvast
(maar herinneringen maken alles mooier dan het misschien
wel was). Dat werd middenloon en alleen nog maar waarde-
vast (kan toch een verschil maken). Vervolgens werd hem als
ambtenaar als gevolg van de bezuinigingsronde omstreeks
1982 het salaris (de pensioengrondslag) met 15% nominaal
gekort. Het was dezelfde bezuinigingsronde die ook de perio-
dieken wegvaagde die hij volgens zijn rang – die ook werd
afgeschaft - nog tegoed had. Ja, dat bespaarde hem wel wat
premie, maar die zou hij graag hebben betaald. Uiteindelijk
kreeg hij een pensioen dat tot nu zonder inflatievergoeding is
en met een nominale aftrek in het vooruitzicht. Een intens
triest verhaal.
In dat perspectief is het opmerkelijk dat de jongeren van van-
daag er nog erger aan toe zouden zijn dan deze 65-plusser en
zijn generatiegenoten. Althans Kees Goudswaard wil voor de
jongeren een lans breken. In Het Financieele Dagblad van 12
november 2012 wordt door Elisa Hermanides en Rob de Lange
naar hem verwezen voor de volgende uitspraak: “Jongeren
moeten relatief minder premie betalen voor pensioenopbouw
dan ouderen”.
Zijn betoog komt er op neer dat een jongere als zodanig een
premie betaalt die langer uitstaat dan de premie die een
oudere betaalt. Daarom is de premie van de jongere meer waard
en daarom moet hij minder betalen. “Nu betalen jong en oud
nog een even hoge premie, de zogeheten doorsneepremie”.
Ik ben eens gaan rekenen. Uitgaande van een constante beloning
van 100 per jaar, een doorsneepremie van 6% per jaar en een
rekenrente van 4% op jaarbasis komt de eindwaarde van de
betaalde premies uit op het bedrag van e610,82. Goed voor 9
jaar pensioen van 70% van het middenloon. Op basis van
dezelfde uitgangspunten komt de gedachte van Goudswaard
neer op het verloop als in grafiek 1. Als volgens deze grafiek
premie wordt afgedragen hebben alle afdrachten bij 65 jaar
dezelfde eindwaarde. Op 25-jarige leeftijd bedraagt de premie
dan 3,043% per jaar en aan het einde is dat opgelopen tot
14,61%. De waarde van het totaal gespaarde bedrag is ook
dan e610,82. Op het einde maakt het dus geen verschil. De
vraag is wat iemand liever doet: gemiddeld 6% betalen of
opklimmend tot bijna 15% gaan. Zelf weten, zou ik zeggen.
Drs. Joost G. Groeneveld
RA RV is directeur van
Wingman Business
Valuators B.V. te Breda en
voorzitter van de Stichting
WBO (register van
business valuators).
Hij was hoofddocent aan
de Economische Faculteit
van de Erasmus
Universiteit te Rotterdam.
Pensioenpremie betalen
K(r)anttekening | Drs. Joost Groeneveld RA RV1
32 • Pensioenpremie betalen
fsrforum • volume 15 • issue #2
Ja, zegt Goudswaard, maar als iemand halverwege zzp-er wordt. Dan heeft hij wel de dure jonge
jaren betaald en mist hij de voordelige latere jaren. Met een parafrase naar Goudswaard:
“Waarom zou je solidair willen zijn met mensen die eerder willen stoppen” in dit geval met
premie betalen?
Maar er is een oplossing door aan de jaarpremies een verschillend gewicht te hangen. In mijn
voorbeeld zouden de eerste 15 premies dan goed zijn voor (ruim) 20 van de 40 jaren (zie grafiek
2). Vervelend wordt het dat de laatste jaren dan niet meer zoveel bijdragen aan een hoger pensioen.
Dat zou er misschien toe kunnen leiden dat ouderen vervroegd uittreden.
Goudswaard vervolgt met op te merken dat vergrijzing de druk op de jongeren echter vergroot.
Dat lijkt me een onjuiste vaststelling. Daar staat immers tegenover dat de oudere op de koop-
kracht en de nominale omvang van zijn pensioenuitkering inlevert, hoewel hij zijn hele leven
als jongere en als oudere zijn premie heeft betaald. Je kunt je ook afvragen of de oorzaak van
een (te) lage dekkingsgraad niet (mede) is veroorzaakt door een minder geslaagd beleggings-
beleid aan de zijde van het pensioenfonds, respectievelijk de toepassing van “lange termijn”-
rentevoeten op basis van “korte termijn”-gemiddelden.
Zou het een oplossing zou zijn om elke pensioengerechtigde zijn bij elkaar gespaarde geld mee
te geven? In plaats van het “mechanisme” van Goudswaard “om de pensioenen automatisch aan
te passen als de levensverwachting toeneemt”? Onder andere kunnen we dan zelf kiezen voor
een profilering van het risico dat we nu lopen met dat automatische “mechanisme” dat Goudswaard
voorstelt.
De vraag is wat iemand liever doet: gemiddeld 6% betalen of opklimmend tot bijna 15% gaan.
Pensioenpremie betalen • 33
Protect relationship banks from internet grasshoppers
Ivo Arnold1
The financial crisis has, in a brutal way, drawn attention to the activities of banks. Traditionally,
two types of business models are distinguished in banking: the relationship-oriented model and
the transaction-oriented model. Relationship banking is about building and maintaining long-
term relationships between banks and their clients. A relationship bank invests in collecting
client-specific information and tries to maintain the bank-client relationship over time to sell
multiple financial products. In contrast, transaction banking is about impersonal financial
transactions, which are mostly conducted through financial markets. In general, transaction
banks have more tradable securities on their balance sheet, while relationship banks lend rela-
tively more to small and medium-sized enterprises (SMEs) and consumers.
During the financial crisis it became evident that transaction banks are more vulnerable to a
change in market sentiment than relationship banks. The value of their securities fell sharply
and their funding via money and capital quickly dried up. In contrast, relationship banks had
more time to protect themselves against the effects of the crisis: their deposit funding was rel-
atively stable and impairments on bad loans could be postponed.
Over the last decade relationship banks have been confronted with a new, innovative way of
banking, the so-called the pure play internet model (PPI).2 PPI is a business model whereby
banks collect savings exclusively via internet and abstain from local market presence in the
form of physical branches. With well-functioning ICT systems, clever marketing strategies and
high interest rates, a PPI bank can attract a lot of savings in a short period of time. Superfi-
cially, PPI banks and relationship banks target the same client. However, the lack of a physical
local presence makes it difficult for PPI banks to invest in a long-term relationship between
bank and client. As a result, most PPI banks do not collect client-specific information and do
not provide loans to SMEs. PPI banks also attract savers who are mainly interested in a high
interest rate, and who may quickly go elsewhere if rates are higher there (these are the so-
called hit-and-run savers). It is therefore safe conclude that PPI banking is very different from
relationship banking.
One important downside of PPI banks is that they uproot savings from local communities and
do not necessarily re-invest these funds in the same community, as their knowledge is too lim-
ited to lend to local SMEs. In that sense, one could compare PPI banks with grasshoppers. As a
consequence, less funding is available for local SMEs. PPI banks such as ING Direct and Icesave
invested their internet savings mainly in bonds. This could make funding costs higher for the
traditional relationship banks and make SME lending more expensive. PPI banks can get away
with this because of the deposit guarantee system: clients shop for the highest interest rate
without having to worry about a bank’s risk profile.
Another downside of PPI banks is that they may burden the national deposit guarantee system.
This is especially a concern when PPI banks start to operate internationally via branches, as
ING Direct and RaboDirect currently do. By choosing the branch format, the foreign deposits
are quaranteed under the Dutch deposit guarantee system. When push comes to shove the
Dutch taxpayer will be liable for these foreign savings. However, when big banks in tiny coun-
tries operate internationally, supervisors should take extra care to protect taxpayers’ interest.
The Icesave case in Iceland made it very clear that a large imbalance between the size of the
fsrforum • volume 15 • issue #2
34 • Protect relationship banks from internet grasshoppers
financial sector and the size of the economy is risky. Unfortunately, the Dutch supervisor hasn’t
yet learned this lesson.
A different design of the deposit guarantee system could neutralize the negative effects of PPI
banks and maintain the public protection of the useful activities of relationship banks. Cur-
rently, whether a bank falls under the Dutch deposit guarantee system is mainly a legal matter.
Any bank with a banking license will be protected by the system, whatever the business model.
As a result, Leaseplan could start a PPI bank and collect insured deposits, even though Lease-
plan is not a relationship bank and supporting a car lease company is clearly not a public task.
In general, one can doubt whether PPI banks and transaction banks should fall under a public
safety net. An economic analysis of this question should focus on whether public support for
banks is in the public interest. The public interest is that the domestic payments system is pro-
tected and that bank lending to SMEs – firms that do not have direct access to financial markets
- is maintained. PPI banks that invest their funds in securities do not fulfill an indispensable
social task. Mutual funds do this as well. There is also no good reason why the Dutch taxpayer
should protect the deposits of foreign savers’ of the PPI branches of the big Dutch banks. A dif-
ferent deposit guarantee system, in which the government decides which banks deserve to fall
under the public safety net, is thus called for. Such a system needs a supervisor who dares to
exercise judgment, instead of following a rule book. It could also provide government a power-
ful instrument to discourage activities of banks which do not serve the public interest.
The pivotal role that relationship banks play in financial intermediation would certainly qualify
them to fall under the protection of a deposit guarantee system. In contrast, PPI banks’ busi-
ness model undermines traditional relationship banking, makes SME credit more expensive,
and exposes the taxpayer to extra risks. In my opinion, these grasshoppers should be excluded
from deposit protection.
1 Professor of Economics at Erasmus School of Economics and Nyenrode Business University.
2 See Arnold, I.J.M. and S. van Ewijk, 2011, Can pure play internet banking survive the credit crisis? Journal of Banking and Finance, 35(4), 783–793.
One can doubt whether PPI banks and transaction banks should fall under a public safety net.
Protect relationship banks from internet grasshoppers • 35
Wil jij een carrière inCorporate Finance?Duisenberg school of finance onderscheidt
zich van andere universiteiten door de inzet
van vooraanstaande academici uit binnen- en
buitenland, kleinschaligheid en veel aandacht
voor sustainable finance.
Alleen de beste studenten worden toegelaten
tot één van de vier Master programma’s. Door de
nauwe samenwerking met de sector wordt in de
programma’s een brug geslagen tussen theorie
en praktijk. Kies voor het Corporate Finance and
Banking - of Financial Markets and Regulation
programma en wordt een gewilde kandidaat
voor functies in Mergers and Acquisition, Private
Equity, Structured Finance, Asset Management,
Equity Research en Consulting.
DSF Programma’s•MSc Finance, Corporate Finance and
Banking track
•MSc Finance, Financial Markets and
Regulation track
•MSc Finance, Risk Management track
•LLM Finance and Law
Aanmelden is gemakkelijk
en doe je via de website!
www.dsf.nlfor leaders in finance
DSF227_A4advertentie_CFB_FMR_02.indd 1 30-08-12 11:45
Relationship banking: Do something useful for customers!
Philip Hans Franses
A modern instrument that banks are enhancing, or are
planning to do so, is called “Relationship banking”. The term
borrows from customer relationship management (CRM),
which is fashionable already for many years in various areas
of the service industry, but these days also of energy firms,
insurance companies and government. A key idea is that
acquiring new customers is usually more expensive and tedious,
than to retain current customers by somehow making them
happy.
It is often believed that current customers can be made more
happy, and of course the firms too, by cross-selling some of
the other products of the firms. Telephone companies offer
SMS services for low fees, or even provide you with a new
phone if you extend your bundle with a few more minutes.
Or, energy firms offer a free check-up of your boiler if you
switch from your current provider to theirs.
Banks can also strengthen the relationship with their customers
by offering a new array of financial products and services.
Additional to a basic savings account, banks can offer credit
cards, insurance products, loans and any type of business service.
It is quite likely that customers could be made to feel happier
with these new products and hence stay loyal to your firm,
even when you reduce the interest rates on their savings
accounts.
Marketing research in the last few years has shown that
future customers’ behavior can be quite predictable. One
reason may be that with all these newly cross-purchased
products, customers have complicated their own decision
process. Indeed, leaving one provider for another implies
that all products have to be evaluated again, and this implies
quite a comprehensive consumer task. A second reason,
which associates with the first, is that many customers do
not always fully comprehend what all these newly acquired
products actually entail. Recent economic research shows
that often customers have insurance some of which is not
relevant. Also, the recent economic crisis has indicated that
many people cannot properly handle a credit card, and as
such end up in a financial mishap. Other research has shown
that many individuals would have problems with solving
rather straightforward computations, while computations
with interest rates are too difficult for even bachelor students
in Economics.
In my opinion, it would now (and the time of writing is
December 2012) be a very good moment for banks to look for
forms of relationship banking that would really help customers.
And, not only help them, but also do so in a for customers
understandable way. Banks could arrange that the default
option of loans for durable consumer goods (like cars and
electronics) is that the debt has to be paid back before the
average lifetime of these products. Indeed, many electronics
and computers will have to be replaced after, say, 3 years, and
banks should prevent that customers still have to pay off
debts for already replaced products. Furthermore, banks can
only issue credit cards once a deposit has been dropped. And,
banks can make sure that customers carry only a single
credit card. Banks can also help with mortgages and take as
the default version of the product the version with the least
risk, in case customers need to sell their house sometime
near in the future. It is sad but well-known that many mar-
riages do not make it to the end, and that an earlier end of a
marriage frequently entails that people have to sell their
house. This knowledge can be incorporated in the products
that banks try to cross-sell.
In brief, it would serve banks to think of relationship banking
such that it really is useful to the customer. I would recom-
mend doing so, even when short-term profits are low or
absent. After all, loyal customers are much more important
in the long run. Of course, this means a shift from short-
term think to longer-term visions. This also means that
future managers benefit from today’s managers’ actions. A
new way of thinking about what banking actually is, is at
stake here, and perhaps now is the right time to start with
that.
fsrforum • volume 15 • issue #2
Relationship banking: Do something useful for customers! • 37
Wil jij een carrière inCorporate Finance?Duisenberg school of finance onderscheidt
zich van andere universiteiten door de inzet
van vooraanstaande academici uit binnen- en
buitenland, kleinschaligheid en veel aandacht
voor sustainable finance.
Alleen de beste studenten worden toegelaten
tot één van de vier Master programma’s. Door de
nauwe samenwerking met de sector wordt in de
programma’s een brug geslagen tussen theorie
en praktijk. Kies voor het Corporate Finance and
Banking - of Financial Markets and Regulation
programma en wordt een gewilde kandidaat
voor functies in Mergers and Acquisition, Private
Equity, Structured Finance, Asset Management,
Equity Research en Consulting.
DSF Programma’s•MSc Finance, Corporate Finance and
Banking track
•MSc Finance, Financial Markets and
Regulation track
•MSc Finance, Risk Management track
•LLM Finance and Law
Aanmelden is gemakkelijk
en doe je via de website!
www.dsf.nlfor leaders in finance
DSF227_A4advertentie_CFB_FMR_02.indd 1 30-08-12 11:45
Dear reader,
Time flies when you are having fun. Nothing will apply better to this than the past six months
of being a board member of the FSR. The first part of the academic year proved to be a great
success with the International Banking Cycle, Big 4 Cycle, Accountant Firms Day, Finance Day,
Traders Trophy and the Financial Business Cycle. Now that a new year has begun, I would like to
use this opportunity to wish you all a very successful and fruitful year on behalf of the FSR board!
The first cycle of the year was the International Banking Cycle. Together with the ten investment
banks we invited a selection of over 200 students to work on cases and have the first-hand
opportunity to get acquainted with the work of an investment banker. This year we expanded
the opportunity of choosing between a Mergers & Acquisitions workshop and a Sales & Trading
workshop. Next to these workshops, the presentations and drinks at ‘The Faculty Club’ provided
many interested students with more information about the opportunities within investment banking.
Again, there were record breaking enrolments for the Big 4 Cycle this year and we are very satisfied
with the different perspectives these four inhouse days delivered. Together with the Accountant
Firms Day the accountancy student is very well served at the start of this academic year. Already
famous in the FSR curriculum is the Traders Trophy, where over 90 students can experience
what it takes to be a stock trader through a simulation game. Although a little hectic at some-
times, trading stocks in the market is nerve gripping and very addictive.
Next to these events we had the honour to host many guest lectures this year and we look forward
to those to come. These guest lectures provide an excellent base to link the theoretical lectures
to the practical insight of a company.
At the 10th of November the yearly active members day took place. First, we suited up in cam-
ouflage and grabbed our Tippmann guns to hunt each other down on a great paintball field in
the south. While proudly showing our fresh bruises of the battle we departed to the second
activity: wall climbing in ‘de Bergse Hoek’! After seeing the real strength of our active members
and former board members it was time to wine and dine at Café ‘Beurs’. To finish the day and
start the night we went to ‘Vrienden van Live’ to enjoy the live music.
Finally the last inhouse days of the Financial Business Cycle took place in January. You will find the
report in the next episode of the FSR Forum. Also, the preparations for the International Research
Project are almost done as in May the participants will leave to Beijing. Next to this international
journey the European Finance Tour will depart to Zurich with an exciting and packed programme.
For the finance-oriented students the Banking Dinner and Multinational Dinner are two events
not to be missed in January. In addition, the Erasmus students will have to strive to be the best
at the Multinational Battle and make Rotterdam champion for the third time.
As you can read, we can look back on a successful first half year, but there are many more activities
yet to come. Therefore, I would like to end with saying I look forward to welcome you all
at one of our cycles, workshops, master classes or drinks.
FSR News
40
41
44
47
Column Mariska van Hoorik
Column Roy Perlot
International Banking Cycle
Active Members day
Word of the chairman
Sep Vermeulen
fsrforum • volume 15 • issue #2
38 • FSR news
BRITAIN’S banks are still in retreat. Figures released on July
30th showed their lending to corporations fell in June to
£489 billion ($762 billion), more than 25% below a peak at
the end of 2008. Bank lending to unincorporated, usually
smaller, firms has fallen similarly (see chart). Many busi-
nesses are anxious about the economic outlook and have no
immediate need for credit to expand their operations. But
the high and rising cost of bank loans suggests credit supply
is still a problem. The rate paid by firms on bank loans has
risen by 0.16 percentage points, to 3.12%, since June last
year, well above the Bank of England’s benchmark interest
rate, of 0.5%. The rate on overdrafts has jumped to 3.79%.
Bank credit is likely to remain scarce when business confi-
dence eventually recovers. The international rules on how
much capital banks must set aside against different sorts of
loans, known as Basel 3, make small-business lending a costly
proposition. Old loans weigh on scarce capital, limiting the
scope for new ones. The “funding gap” left by retreating
banks may prove as large as £191 billion, according to a
report for the government by Tim Breedon of Legal & General,
a big insurer. How might it be filled?
Some other finance firms sense an opportunity. Shawbrook
Bank and Aldermore were established recently to provide
small- and medium-sized businesses with banking services.
Yet their lending is measured in the hundreds of millions,
rather than billions, of pounds. GE Capital, the finance arm
of the engineering giant, has more muscle. Its lending to
British firms rose by a quarter between 2009-10 and 2011-12.
It focuses on firms with revenues of between e10m and e500m,
leaving the corporate giants to the big banks, which can offer
investment-banking services.
Its parent’s manufacturing heritage gives GE Capital an edge
in asset-backed lending—the kind that is secured against
invoices, stock, or equipment, and which requires less regu-
latory capital. “We know how to value critical equipment,
such as copiers or cars, for resale”, says Rich Laxer, head of
GE Capital’s business in Europe. Limiting the losses on risky
small-business lending requires a detailed understanding of
local businesses. Mr Laxer says his staff are rigorously trained
in credit analysis and spend time getting to know their cus-
tomers. As banks retrench, GE Capital has a chance to build
business relationships “that will survive for 10 or 20 years”.
Small-business lendingBank transferGrowing firms need to look beyond the big banks for creditMost recent newsupdate about the subject.
Businesses might hope to tap into institutional funds. In part because of regulation, insurance
and pension firms prefer big bond issues backed by the government or large firms, which can
be easily traded in and out of. Mr Breedon’s report suggests the creation of a state-backed agency
to pool small-business loans might address this. But even if a liquid market in such securities
could be created, it would still rely on banks with experienced loan officers to assess the credit risk
of small firms.
A more promising route is for companies to raise money directly from savers. Small but fast-
growing web-based firms such as MarketInvoice and Funding Circle put businesses in need of
cash in touch with well-heeled investors or cash-rich companies. More than £2 billion in debt
has been raised through the order book for retail bonds (ORB), an electronic trading platform
launched by the London Stock Exchange Group in February 2010. These bonds come in blocks
of £1,000 or less to make them accessible to small savers. Bonds available on ORB include
issues by familiar names such as Rolls-Royce as well as by smaller entities such as PHP, a health
care facilities firm, and Places for People, a housing trust. Issues are often oversubscribed.
Xavier Rolet, chief executive of the London Stock Exchange Group, cites Italy’s retail-bond
market, where up to e5 billion of corporate bonds are traded daily, as a guide to ORB’s potential.
Such markets should grow as more business folk gradually find out about them. The hope is
that banks do not further retreat from corporate lending before alternative sources can fully
emerge. The Bank of England’s “funding for lending” scheme, launched on August 1st, should
help. It gives commercial banks access to cheap money for up to four years, at interest rates as
low as 0.75%. The cost of funds are cheapest for banks that maintain or increase their lending
to businesses and consumers and dearest for those that cut it. The scheme will help slow the
rate at which bank lending is shrinking. But it will not stop it altogether.
Source: http://www.economist.com/node/21559928
fsrforum • volume 15 • issue #2
FSR news • 39
FSR Former board member
Mariska van Hoorik
I remember my FSR board year as a very fun year, in which I
learned a lot. For me, one of the most positive aspects of
being a board member of the FSR was the combination of
study related activities, recruitment activities and social
activities. One day we could be having diner with the most
prestigious companies, the next we’re having an alumni
drink and the following morning we could be lining up in the
C-hall to promote our next event!
My personal highlight of the year was of course the Interna-
tional Research Project to Brazil. I had been preparing this
for almost a year, so I was very excited when we finally arrived
in Sao Paulo and later Rio de Janeiro. Some of the company
visits were quite impressive and I had great committee and
group members to join me in this experience.
It was also a pleasure to be part of the 10th FSR board
because we were a great team. We got closer and closer
during the year through all the experiences that we shared.
And even now, we still meet each other on a regular basis for
drinks or a weekend trip. We also were the lucky ones to
organize the Lustrum 5 years ago, with a programme that
will be very hard to beat this Lustrum!
The FSR for me, also was a start of a more ‘serious’ student
life. I had been studying for 4 years, but only after I joined the
FSR I felt involved with the university and started thinking
about my future career. It gave me a broader perspective of
the opportunities after graduation and what companies had
to offer. Not that this made my choice after graduation any
easier… This is why I decided to apply for a traineeship. This
way I could figure out what I wanted and gain work experience
at the same time. I started my traineeship within Fortis Bank
Nederland and got the opportunity to do 5 assignments,
most of them within Finance. One of my assignments was on
Curacao and one in New York, not a bad start of my career!
After my traineeship I started working at the central Finance
department of the new ABN AMRO. My team was responsible
for all forward looking financial information of ABN AMRO
group, such as the budgets and forecasts, reporting almost
directly to the board of directors of ABN AMRO. A good place
to start in a large company such as ABN AMRO, since I got to
see a lot that was going on within the bank.
PassPort
Name
Mariska van Hoorik
age
27
residence
Amsterdam
Employed at
ABN AMRO
Current position
Customer Excellence
Expert
Which Fsr Board
10th
Board function
Commissioner IRP
study
Economics – Account-
ing, Auditing & Control
Year of graduation
2009
Which car do you
drive
My bicycle brings me
everywhere
What do you drink
on a Friday night
Beer, wodka
Life Motto
Get the most out of life
As of January, I will be starting in my new job as Customer
Excellence expert. Customer Excellence is the new way of
working within ABN AMRO based on LEAN principles and I
will be introducing it in departments of ABN AMRO. It will be
something completely different than what I studied for, but I
am very excited to take on this new challenge. And I’m sure
that all my experiences, including those within the FSR, will
help me with this.
fsrforum • volume 15 • issue #2
40 • FSR news
FSR Member
Roy Perlot
How did you come in contact with the FSR? Since I studied my Bachelor in Groningen and decided to
move to Rotterdam for my masters, I wanted to participate in
some events or do something when I started in Rotterdam.
So when I first heard of the International Banking Cycle I
was impressed and thought who organizes that? Well the
FSR did and I thought that I should send them an email/call
to see what is going on at the FSR.
Basically they where still looking for some committee members
and one of the ladies on the board told me which spots where
open and that I should apply within 2 days as the deadline
was already due officially.
I thought, why not? It can be fun and a good way to network
a bit. I had no real clue what FSR was and reckoned that
there where so many study associations to choose from. How-
ever, I am still happy that I joined the FSR of course.
In which FSR event did you participated?I participated first in the IBC in 2010 and then helped organ-
izing the Financial Business Cycle.
How have you arranged your job?I started applying to many internship vacancies in the Nether-
lands first, as I figured out that my CV was not that great
compared to my fellow students around me. I just wanted to
get any internship related to banking/advisory and found an
opportunity at a smaller Private Equity player GIMV. From
there I could make the step to get an offer for Lazard internship
in the Netherlands. While doing this internship I participated
in the IBC 2011 edition and managed to get a full-time offer
for Morgan Stanley through the IBC event. As I did my
internships at Lazard, they decided to offer me a full-time
position. In the meantime, I finished my second internship
and my studies.
Please describe your experiences at the job in general (corporate culture, assignments, colleagues, etc.)So far it is has been a great experience. First of all the training
is absolutely brilliant in terms of fun, networking and learning
your way around in a new city. You really “get to know”
(when drinking until late in the bars) all first year analysts
that start around Morgan Stanley, which makes your life
much easier when you start on the job and you need people
from across the world (so advice: participate in any event and
join for any party). Then afterwards you hit your desk and
you are welcomed by the team, which was a smooth transi-
tion to be honest. My team is quite big so I tend to work with
many different people/nationalities all the time, which I
really see as a benefit. Average project teams consist of four
team members, one for each level in seniority in the Bank. As
the analyst, you have to do all the work basically, but it also
makes you the one that can connect all the dots, as the seniors
do not really know every minor detail. From day one on you
are involved in everything and they share all inside informa-
tion with you, which is great as they really encourage you to
listen and start thinking like the more experienced people as
quickly as possible.
What do you consider to be your best performance during your job?Multi-tasking and managing expectations properly, that is
key to “safe” yourself from underperforming. I personally do
not feel much pressure even if there is a lot sometimes,
which is good as you can be realistic and perform better. As
the work is very dynamic and the workload can be volatile, I
remember one week where a project kicked-off and we had
two pitch books to be delivered in the same 3 days. As you are
working with different teams they are mostly unaware of
your other projects and hence they do not know that you are
super busy at that time, which makes it a bit tough and
extremely busy but very fun to manage it and in the end I got
everything delivered in time (just in-time to be honest).
Which moment of your job will you never forget?The first flight that I missed after “enjoying“ attending the
IBC this year……. I missed a meeting, had my seniors chasing
me and arrived in the office feeling terrible and then I got
staffed on my first live deal. That was a typical moment that
you see what a rollercoaster a job (in a few hours from worst
moment you can imagine to a very good moment, as good
deals are rare in this market) in Investment Banking can be,
but also the moment when I realized that this is the right job
for me, at this moment…
PassPort
Name
Roy Perlot
age
24
residence
London, UK
study
Master in Finance &
Investments, Bachelor
in Business Manage-
ment
Fsr event
International Banking
Cycle/ Financial
Business Cycle
Job at
Morgan Stanley
Department of
job
Investment Banking
Division : Financial
Institutions Team
fsrforum • volume 15 • issue #2
FSR news • 41
Activity Report Accountant Firms Day 26 November 2012
The FSR organized the accountant firms day (AKD) in cooperation with
Baker Berk Tilly, BDO, Grant Thornton and Mazars on the 26th of
November. On this day, students had the opportunity to get acquainted
with some of the middle-sized accounting firms, during an intensive
and practical case workshop. The event was held at hotel STROOM in Rotterdam, where a
group of thirty students was selected to participate. Each company had two employees present,
a recruiter and an auditor, who you could ask all your questions. The day started off with a
speech by dr.sc.ind. A.H. van der Boom about the accountancy world and the middle-sized
accountancy firms. The speech was followed by a short presentation by each of the four par-
ticipating firms. During the presentations the students got to know what it is like to be an account-
ant at one of these four accounting firms and the differences between them.
After these introductions, the students had the chance to get to know more about the firms and
their employees during the informal lunch. After the lunch, the students were divided into four
groups, each working on the case in their own way. During the case, the groups had to conduct
interviews with the management and other departments of the company they were going to
audit. The management was acted out by one of the employees of the accountancy firms, giving
them a chance to observe and interact with the students. This led to some interesting results.
Each group presented their conclusions at the end of the day, after which the companies got a
chance to comment. After a short discussion, one group was pronounced as the winner and
received the prize. After this intensive and informative day, it was time for some drinks and
snacks! This gave the students the chance to ask more questions that has not been answered
during the day and get even more information about the participating firms. After this infor-
mal drink, the day had come to an end and the accountancy committee can look back on a very
successful event.
fsrforum • volume 15 • issue #2
42 • FSR news
Finance Day 2012
On the 27th of November the Finance day took place at the Erasmus Univer-
sity for the third time. The Finance Day is a cooperation between the FSR and
the EFR. The day started with a short introduction, after that Mr. van
Rossum took the stage, as the former CEO of Fortis and McKinsey&Company.
Mr. van Rossum gave some really interesting insights into the world of
banking and into the situation we find ourselves in nowadays. After that
both Prof. dr. Han Smit, program coordinator of Financial Economics at the Erasmus
School of Economics and dr. Marieke van der Poel, program coordinator of the RSM
Master program Finance & Investmenst, told the students about the possibilities for the
Finance Master program on both the ESE and the RSM.
After the insights about the possibilities at the Erasmus University, Manon ten Holter of
KPMG Corporate Finance gave an introduction on the career possibilities at KPMG
Corporate Finance. Then Naomi Beurze and Diederik Artz of SNS Reaal gave an intro-
duction on the career possibilities at SNS Reaal. After all these presentations it was time
for a lunch in the Sienna where some sandwiches were waiting.
After the lunch the workshops began. This was a new part of the Finance Day this year. The
students could join a workshop of both KPMG and SNS Reaal. In the KPMG workshop,
students were given a valuation problem of a company that had to be acquired. After
two hours of struggling, the groups gave a presentation about their findings and their
valuation of the company. In the SNS Reaal case students were faced with the problem
how SNS Reaal should approach their customers and how to manage and keep their
existing customers with them. After two hours the students had to present their findings on
how they thought SNS Reaal should do this.
Last but certainly not least, Laurens Swinkels, Vice President at Robeco and Assistant Professor
at Erasmus School of Economics, told the students everything about Robeco and his function
at Robeco in a plenary session. He also presented the questions that Robeco is facing every day
concerning Risk Management, Portfolio Analysis. All in all the Finance Day 2012 was a great
success and we want to thank the students and the participating speakers and companies for
their contribution to the day.
fsrforum • volume 15 • issue #2
FSR news • 43
The International Banking Cycle 2012
This year’s edition of the International Banking Cycle kicked off with an exclusive insight into
the banking system and the problems and challenges investment banks are facing. Students at
the Erasmus University got the chance to attend an interactive congress on the topic of banking
on 12th of September, with some of the most renown speakers in their field. By this time,
students of a variety of universities were applying for the International Banking Cycle to take
part in workshops offered by ten of the worlds largest investment banks: Nomura, Lazard,
Morgan Stanley, J.P. Morgan, Credit Suisse, Bank of America Merrill Lynch, Deutsche Bank,
Barclays, UBS and ING. By uploading their CV, cover letter and company-specific motivation
letter, students enrolled in a selection procedure of which a group of 20-25 students per work-
shop would get the chance to take part.
Each of the ten participating investment banks had a full day at the Erasmus University or
University of Amsterdam (UvA), which consisted of a workshop, a firm-wide presentation and a
drinks reception afterwards. To give everyone interested in banking an idea of the corporate
culture, the different divisions in banking and the job opportunities at these firms, the firm-
wide presentations and drinks receptions were open to all and did not require subscription. For
those that were selected to take part in a workshop, working on a case offered them the perfect
opportunity to prove their skills and ambition to work at the investment bank of their choice.
Each bank offered a case with a focus on Mergers & Acquisitions, this often meant that they
fsrforum • volume 15 • issue #2
44 • FSR news
were put to the task of assessing the value of a company and negotiating
the price of a takeover bid. Also, some banks offered a case with a focus on Sales & Trad-
ing, which entailed more portfolio restructuring and forecasting market movements. The
participants were challenged to prove they could work under time pressure, possessed
excellent social skills and were analytically strong. After each workshop, a group of out-
performing students was selected to take part in interviews for an internship or full-time
position the day after.
The International Banking Cycle 2012 has been concluded on 2nd of November and we
are proud to announce that it has yet again been a successful event, both for the com-
panies involved and for the participating students.
FSR news • 45
Traders Trophy 2012
Thursday, the 22nd of November the qualification rounds for the Traders
Trophy worldwide were held in Rotterdam at the Erasmus University for the
fifth time already. We were honored to organize this event, just as in the previous
years, in association with our partners Optiver and Oxyor. Expectations were set really high as
an FSR member became the national winner and Netherlands best student trader last year.
The qualification day proved to be a great success. Rotterdam had the highest enrolments
amongst the competing Traders Trophy universities. Next to Rotterdam, the qualification
rounds took place at Amsterdam, Delft, Groningen, Nyenrode, Tilburg and Maastricht. The
first qualification round started with a short introduction from one of Optivers traders and a
brief explanation on the simulation game from Oxyor. After an hour of intensive trading,
students were invited to hang out at the new Optiver lounge to play Mario games or networking
with Optiver recruiters and even challenged for a second challenge: doing 80 mathematical
questions in just 8 minutes. Another two qualification sessions were held during the day and
at the end of the day the awards ceremony was well attended.
Amongst the 90 participants during the day, four students were selected to compete in the
national final. The selection was based on scores on profitability, market awareness, market
making and risk management. The winners of the Rotterdam qualification round were Peter
Verheijen, Filip Georgiev, Jan Smeets, Korrein Volders en Matthijs Bremmer. Of this selection
Peter Verheijen was the proud all day winner and received an Apple Ipod from Optiver/Oxyor.
The national final took place at the Amsterdam Stock Exchange on the 13th of December. On
this day, participants from all over the Netherlands traded three different stocks in a very com-
petitive environment.
fsrforum • volume 15 • issue #2
46 • FSR news
Active Members Day
After a secret preparation by the board the first informal activity for
our active members was organized. Saturday the 10th of November, all
the active members were ready to have fun and get to know each other more and
more. Everyone was expected at Kralingse Zoom to have our first unexpected activity. We
arrived in Eethen for a thrilling paintball death match. After the lunch, selections for a blue
and red team were made and the battle was ready to begin. First of all a death match with a
marvelous victory for the red team, but the blue team took revenge and defeated the red team
during the two other tactical operations.
After this stunning hour we had some drinks and went back to Rotterdam for the next activity.
We arrived at the former highest climb wall in Holland, with a height of 36 meters. After a
short safety instruction we could start and challenge each other who could reach the top.
After this exhausting activity, it was time to go back to Rotterdam. Everybody was quite worn-out,
but this was not yet the end of the day.
It was time to have dinner at Café Beurs, discuss all the activities of the day and get to know
each other better. After dinner we went to ‘Vrienden Live’ to enjoy the
live music and everybody could party until dawn.
fsrforum • volume 15 • issue #2
FSR news • 47
FSR Activity Agenda 2012-2013
January Multinational DinnerGet in touch with the multinationals
Finance DinnerGet acquainted with the world of banking
January-April CleanTech ChallengeGrow your green ideas!
February/March Multinational BattleFour multinationals, five battling cities, are you part of it?
Corporate Finance CompetitionFive star event: hotel, companies and participants!
April Female Business TourIt might be a men’s world but it would be nothing without women
May International Research ProjectUsing your intellect for a charity!
Bachelor Accountancy DayWill you choose for a career in accounting?
European Finance TourExploring European financial world
fsrforum • volume 15 • issue #2
48 • FSR news
© 2012 PricewaterhouseCoopers B.V. (KvK 3412089) Alle rechten voorbehouden.
www.werkenbijpwc.nl
Soms ben je tevredenSoms drijf je jezelf tot het uiterste
Kom verder op werkenbijpwc.nl
Je hebt tijdens je studie alle mogelijke kennis opgedaan. En nu wil je aan de slag. Op een plek waar je al je ambities kwijt kunt. Waar de lat hoog ligt en waar je samenwerkt met professionals. Je start je carrière vliegend en gaat recht op je doel af. Dat is: het beste in jezelf naar boven halen.
Neem voor meer informatie contact op met een recruiter:
Volg werkenbijpwc op Facebook en Twitter
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PwC RC Standaard WO tevreden.indd 1 10/8/12 12:02 PM
Vallen. Opstaan.Vallen. Opstaan.Vallen. Opstaan.
Het ideale carrièrepad.
Vergeet het. Een kaarsrecht, steil omhooglopend carrièrepad bestaat niet. Je krijgt te maken met ups én downs. En het mooie is: je wordt er alleen maar sterker van. Zeker als je werkt bij een organisatie die je helpt en stimuleert; ook in moeilijke tijden. Want die blijken achteraf vaak het belangrijkst te zijn. Zo’n organisatie is Ernst & Young. Kijk voor jouw mogelijkheden op ey.nl/carriere
© 2
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