4 But financial innovation and deregulation imply that borrowers in the market for a mortgage or consumer credit have numerous nonbank financing alternatives, blunting any direct impact of changes in bank lending. I will return to nonbank lending and its implications in a moment.
If relationship borrowing is the key, then – as pointed out in the paper at this conference by Black, Hancock, and Passmore – a bank with many such borrowers might defensively invest in deposit capacity, say, by increasing the number of branches.