Hold-up in multiple banking: evidence from SME lending

This paper analyses loan pricing on short-term lines of credit with an emphasis on situations of borrower distress. Based on a unique data set on SME lending collected from major German banks, we find effective coordination among multiple bank lenders when there is borrower distress. The panel estimation distinguishes between rents to a single bank lender and rents that accrue due to the elimination of competition among multiple lenders. We find relationship lending in terms of duration and housebanking to have no discernible impact on the loan spread. Thus, contrary to predictions in the theoretical literature, multiple lending does not necessarily insure the borrower against hold-up.