The real effects of relationship lending✰

This paper studies the real effects of relationship lending on firm activity in Italy following Lehman Brothers’ default shock and Europe's sovereign debt crisis, two different crisis situations where latter, bank solvency was at centre economic while being more peripheral former. We use a large data set that merges comprehensive Italian Credit Firm Registers. find Lehman's default, banks offered favourable continuation terms to firms with which they had stronger relationships. Such conditions enabled maintain higher levels investment employment. The insulation tighter bank-firm relationships were still present during European especially for tied well capitalised banks.