Relationship banking:

In this paper I analyze the impact of a bank’s business model on the net interest margin of banks for a pre-crisis, a crisis and a post-crisis period. A bank’s business model is represented here by the relationship-oriented model and the transaction-oriented business model. In addition, the effect of the business model in the 2007 – 2009 financial crisis compared to the other periods is explicitly captured. The results show that more relationship banking leads to a higher net interest margin in all three periods, confirming previous research. The results also show that in the crisis the positive effect of relationship banking activities on the net interest margin is even stronger than in the pre-crisis period and the post-crisis period. This is contradictory to my expectations and questions the effect of loan rate smoothing. A possible explanation found in the theory of relationship banking is the lower default rates of relationship banks in economic adverse times, which is the main recommendation for further research. The analyses are conducted at the bank-level with quarterly data on more than 16,000 U.S. banks for the period Q4 1992 – Q1 2016.