Information frictions inside a bank : Evidence from borrower switching between branches
Gong, Di; Ongena, Steven; Qi, Shusen; Yu, Yanxin (29.10.2025)
Numero
7/2025Julkaisija
Bank of Finland
2025
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe20251029103890Tiivistelmä
Banks are multidivisional organizations in which branches hold local knowledge about borrowers. Can this “soft” information be transmitted across units? Studying the population of corporate loans originated by a large commercial bank in China from 2010 to 2020, we find that when firms switch branches within bank, the switching loans carry a significantly lower spread than comparable nonswitching loans. After switching, the new branch further reduces the loan spreads initially, but ratchets it up afterwards, surprising evidence of intra-bank hold-up. By documenting how internal communication failures distort lending, we link relationship banking with delegation, coordination, and information transmission within organizations.
Julkaisuhuomautus
FOCUS
Banks rely heavily on information when making lending decisions, but this information — especially “soft,” relationship-based knowledge — is often local and difficult to communicate across organizational units. The paper asks whether such information frictions exist within banks themselves, not just between different banks. Using the universe of over 119,000 corporate loans made by a large Chinese commercial bank from 2010 to 2020, we examine what happens when a firm changes from one branch of the same bank to another. Do the new branches fully inherit the borrower’s past credit knowledge, or does the borrower experience disruptions similar to switching to a new bank?
CONTRIBUTION
The study makes two key contributions. First, it provides the first empirical evidence of intra-bank “hold-up”, showing that informational frictions and rent-extraction dynamics can occur even within a single financial institution. Second, it bridges relationship banking and organizational economics by demonstrating that internal communication failures between branches distort credit pricing, consistent with theories of delegation and limited information transmission inside firms.
FINDINGS
When firms move to a new branch, their initial loans carry interest spreads about 6 basis points lower than comparable loans, but rates rise within a year as the new branch rebuilds private knowledge—clear evidence of intra-bank hold-up. The effect disappears when the original manager moves with the borrower or when FinTech and mandatory information disclosure improve data sharing. Intra-bank hold-up disproportionately harms small and private firms, raising their borrowing costs and reducing access to credit. Policy reforms that enhance information transparency and digital integration thus not only improve fairness and competition within banks but also promote more efficient credit allocation and financial inclusion.
Banks rely heavily on information when making lending decisions, but this information — especially “soft,” relationship-based knowledge — is often local and difficult to communicate across organizational units. The paper asks whether such information frictions exist within banks themselves, not just between different banks. Using the universe of over 119,000 corporate loans made by a large Chinese commercial bank from 2010 to 2020, we examine what happens when a firm changes from one branch of the same bank to another. Do the new branches fully inherit the borrower’s past credit knowledge, or does the borrower experience disruptions similar to switching to a new bank?
CONTRIBUTION
The study makes two key contributions. First, it provides the first empirical evidence of intra-bank “hold-up”, showing that informational frictions and rent-extraction dynamics can occur even within a single financial institution. Second, it bridges relationship banking and organizational economics by demonstrating that internal communication failures between branches distort credit pricing, consistent with theories of delegation and limited information transmission inside firms.
FINDINGS
When firms move to a new branch, their initial loans carry interest spreads about 6 basis points lower than comparable loans, but rates rise within a year as the new branch rebuilds private knowledge—clear evidence of intra-bank hold-up. The effect disappears when the original manager moves with the borrower or when FinTech and mandatory information disclosure improve data sharing. Intra-bank hold-up disproportionately harms small and private firms, raising their borrowing costs and reducing access to credit. Policy reforms that enhance information transparency and digital integration thus not only improve fairness and competition within banks but also promote more efficient credit allocation and financial inclusion.