BANK RELATIONSHIP IN TIMES OF COVID-19: A LITERATURE REVIEW

Abstract

This study aims to briefly review the literature on the banking relationship in usual times and adversity times arising from the global health crisis of COVID-19. We begin discussing the relevance of financial intermediation services for the promotion of economic activity and the challenges of financial institutions in granting credit. Then, we discuss how the banking relationship emerges as a determinant of breaking the information asymmetry between creditors and borrowers, resulting in credit agreements with lower interest rates, greater capital volume, and lower requirements for guarantees. The theme has aroused the interest of researchers and, despite being abundant, even though most studies highlight the benefits of the banking relationship, the literature presents divergences on this subject. Some authors dispute the positive effects of the relationship, emphasizing the creation of an informational monopoly by the creditor that may, at an opportune moment, use the bargaining power to practice stricter contract terms and higher interest rates. Most existing studies that address the banking relationships issue concentrate their analyzes on regular times. However, it is relevant to investigate the behavior of agents involved in credit operations during crises, times when, as a rule, borrowers are more fragile and in need of access to credit. The appetite of researchers to investigate the effects of the COVID-19 crisis on the financial market and in empirical studies related to the credit market is growing. Therefore, we conclude by describing the evidence found in recent research regarding the impacts of the pandemic on economic activity, the labor market, income, household consumption, and the financial market.