Skip to main content
Swiss Journal of Economics and Statistics
Download PDF

Relationship Banking in the Residential Mortgage Market? Evidence from Switzerland

Swiss Journal of Economics and Statistics volume 152, pages 23–48 (2016)Cite this article

Summary

We examine to what extent mortgage lending is characterized by strong relationships between banks and their borrowers. Our analysis is based on survey data covering all current bank relations for a sample of 1,481 Swiss households out of which 687 have a mortgage. We document that mortgage borrowers maintain significantly more bank relations than comparable households without a mortgage. However, this does not imply that mortgage relations are loose. Comparing mortgage relations to other bank relations of the same households we find that mortgage relations are used for a broader scope of transactions and are held with banks that are located closer to the household. Examining the heterogeneity of mortgage relations across households, we find that financially sophisticated households are less likely to hold their mortgage with a local bank.

References

  • Agarwal, S., S. Chomsisengphet, C. Liu, and N. S. Souleles (2010), “Benefits of Relationship Banking: Evidence from Consumer Credit Markets”, Working Paper Series WP-2010-05, Federal Reserve Bank of Chicago.

    Google Scholar 

  • Ai, C., and E. C. Norton (2003), “Interaction Terms in Logit and Probit Models”, Economics Letters, 80(1), pp. 123–129.

    Article  Google Scholar 

  • Basten, C., and C. Koch (2015), “House Prices, Mortgage Demand and Mortgage Supply: Causal Evidence from a Shift-Share Experiment”, Journal of Housing Economics, 30, pp. 1–22.

    Article  Google Scholar 

  • Basten, C., B. Guin, and C. Koch (2015), “Demand and Supply of Mortgages: The Role of Interest Rate Risk and Credit Risk”, unpublished manuscript.

    Google Scholar 

  • Beck, T., B. Büyükkarabacak, F. Rioja, and N. Valev (2012), “Who Gets the Credit? And Does It Matter? Household vs Firm Lending Across Countries”, B. E. Journal of Macroeconomics, 12(1).

    Google Scholar 

  • Berger, A., and G. Udell (1995), “Relationship Lending and Lines of Credit in Small Firm Finance”, Journal of Business, 68, pp. 351–381.

    Article  Google Scholar 

  • Blankson, C., J. Ming-Sung Cheng, and N. Spears (2007), “Determinants of Banks Selection in USA, Taiwan and Ghana”, International Journal of Bank Marketing, 25(7), pp. 469–489.

    Article  Google Scholar 

  • Boot, A. W. A. (2000), “Relationship Banking: What Do We Know?”, Journal of Financial Intermediation, 9(1), pp. 7–25.

    Article  Google Scholar 

  • Brown, M., and R. Graf (2013), “Financial Literacy and Retirment Planning in Switzerland”, Numeracy, 6, Article 6.

  • Brown, M., and B. Guin (2015), “The Exposure of Mortgage Borrowers to Interest Rate Risk and House Price Risk — Evidence from Swiss Loan Application Data”, Swiss Journal of Economics and Statistics, 151(2), pp. 89–123.

    Article  Google Scholar 

  • Bucks B. K., A. B. Kennickell, T. L. Mach and K. B. Moore (2009), “Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances”, Federal Reserve Bulletin (February), pp. A1–A56.

    Google Scholar 

  • Devlin, J. F. (2002a), “An Analysis of Choice Criteria in the Home Loans Market”, The International Journal of Bank Marketing, 20(4/5), pp. 212–226.

    Article  Google Scholar 

  • Devlin, J. F. (2002b), “Customer Knowledge and Choice Criteria in Retail Banking”, Journal of Strategic Marketing, 10(4), pp. 273–290.

    Article  Google Scholar 

  • European Central Bank (2013), “The Euro System Household Finance and Consumption Survey: Results from the First Wave”, Eurosystem Household Finance and Consumption Network Statistics Paper Series No. 2.

    Google Scholar 

  • Guiso, L., P. Sapienza, and L. Zingales (2013), The Determinants of Attitudes towards Strategic Default on Mortgages, Journal of Finance, 68, pp. 1473–1515.

    Article  Google Scholar 

  • Ghent, A., and M. Kudlayk (2011), “Recourse and Residential Mortgage Default: Evidence from the U.S. States”, Review of Financial Studies 24, pp. 3139–3186.

    Article  Google Scholar 

  • Holmes, J., J. Isham, R. Petersen, and P. M. Sommers (2007), “Does Relationship Lending Still Matter in the Consumer Banking Sector? Evidence from the Automobile Loan Market”, Social Science Quarterly 88(2), pp. 585–597.

    Article  Google Scholar 

  • Kiser, E. K. (2002), “Predicting Household Switching Behavior and Switching Costs at Depository Institutions”, Review of Industrial Organization, 20(4), pp. 349–365.

    Article  Google Scholar 

  • Kysucky, V., and L. Norden (2016), “The Benefits of Relationship Lending in a Cross-Country Context: A Meta-Analysis”, Management Science, 62(1), pp. 90–110.

    Google Scholar 

  • Lusardi, A., and O. S. Mitchell (2011), “Financial Literacy and Retirement Planning in the United States”, Journal of Pension Economics and Finance, 10(4), pp. 509–525.

    Article  Google Scholar 

  • Lymperopoulos, C., I. E. Chaniotakis, and M. Soureli (2006), “The Importance of Service Quality in Bank Selection for Mortgage Loans”, Managing Service Quality, 16(4), pp. 365–379.

    Article  Google Scholar 

  • Morgan Stanley (2010), Understanding Strategic Defaults — ABS Insights.

    Google Scholar 

  • Mylonakis, J. (2007), “A Bank Customer Analysis and Mortgage Services Evaluation: Implications of Market Segmentation Policies”, Banks and Bank Systems, 2(3), pp. 157–157.

    Google Scholar 

  • Puri, M., J. Rocholl, and S. Steffen (2013), “What Kinds of Bank-Client Relationships Matter in Reducing Loan Defaults and Why?”, Working paper.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Swiss Institute of Banking and Finance, University of St. Gallen, Switzerland

    Martin Brown & Matthias Hoffmann

Authors
  1. Martin Brown
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Matthias Hoffmann
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Martin Brown.

Additional information

The authors thank an anonymous referee, SJES co-editor Cedric Tille as well as colleagues at the Swiss Institute of Banking and Finance, Christoph Basten, Catherine Koch, Simone Westerfeld and participants at the 2012 International PhD workshop in Finance in Fribourg for valuable comments. We thank Roman Graf for excellent research assistance.

Rights and permissions

Open Access  This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made.

The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

To view a copy of this licence, visit https://creativecommons.org/licenses/by/4.0/.

Reprints and Permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Brown, M., Hoffmann, M. Relationship Banking in the Residential Mortgage Market? Evidence from Switzerland. Swiss J Economics Statistics 152, 23–48 (2016). https://doi.org/10.1007/BF03399421

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF03399421

JEL-Classification

  • G21
  • D14

Keywords

  • mortgage loans
  • household finance
  • relationship banking