Know thy banker — it could keep you solvent
You’ve probably seen advertising campaigns in which banks describe how much their customer relationships matter to them. While such messaging might have been cooked up at an ad agency, it turns out there is some truth underlying these slogans. As a newly published study co-authored by an MIT professor shows, strong working relationships between bankers and clients reduce the likelihood of loan delinquencies and defaults, at least in the context of an emerging economy. Using propriety data from a large bank in Chile, the study finds that when loan officers go on leave, their clients in good standing — often small businesses — increase their probability of becoming delinquent on loans by almost 22 percent. For already-delinquent clients, the probability of default on loans increases by 18 percent. At the same time, there is a 5 percent reduction in the approval rate for loans among those clients. That means banks are both issuing...