Concentration of Banking Relationships in Switzerland: The Result of Firm Structure or Banking Market Structure?

Switzerland is one of the countries with the highest concentration of bank–customer relationships. The present paper seeks to find out whether this can be explained by the structure of Swiss firms or by the organization of the Swiss banking market. Using survey data from small and medium-sized enterprises in 1996 and 2002, we examine the influence of firm-, loan-, and bank-specific variables on the number of banking relationships. We find that firm and industry structure have the largest explanatory power, while banking market structure and conduct play a minor role. Relationship lending by state-owned cantonal banks and small regional banks tends to enhance the concentration of banking relationships.