Lending Technologies and Community Banks: What Are the Effects on Italian Households’ Default Risk During Financial Turmoil?

Using data from the Survey on Italian Households’ Income and Wealth gathered by the Bank of Italy, I test the effect of relationship and transactional lending technologies on the probability of households becoming insolvent during the crisis. I find that both technologies help in reducing defaults, but the effect of transactional lending is stronger. However, the selection and monitoring processes improve when relationship and transactional lending are combined. Furthermore, I also find that a higher presence of community banks in local markets increases bankruptcies. This outcome is mainly driven by households living in small towns, where the competitive pressure from medium‐large banks is lower.