Big Broad Banks: How Does Cross-selling Affect Lending?

Using unique micro-data that contain the internal information on all corporate customers of a large Northern European bank, I show that combining loan and non-loan products (cross-selling) has two benefits. First, it increases credit supply, especially in recessions. Second, it increases the likelihood of receiving lenient treatment in delinquency. I argue that non-loan relationships play an important role in determining credit supply and debt renegotiation, not only by (i) mitigating information asymmetries (as suggested in earlier literature), but also by (ii) increasing the profitability of the relationship. Exploiting an exogenous and differential change in certain products' profitability due to the Basel II implementation, I estimate the causal effect of this new profit channel on credit supply. A 20 percent decrease in non-loan products' profitability (1) reduces credit supply to affected firms by 10.5 percent (500,000 USD) compared with unaffected firms, and (2) reduces likelihood of receiving lenient treatment for affected firms by 58 percent (23 pp) compared with unaffected firms, conditional on being delinquent.