The business-to-business relationship dimensions in financial services markets

The contracts and documents for banking transactions show economic-legal bonds between clients and banks for loans, guaranteed accounts, collateral’s, mortgages, drafts, etc. As a consequence, clients become somewhat dependent on banks, since if the client defaults then the bank can resort to legal means given the guarantees provided by the client. However, banks do not exploit the client’s dependence, provided the client fulfils its contractual obligations. The “normal” working of the relationship takes place “as if” the legal bonds did not exist. They are an underlying condition for the relationship but that condition is invariant in time. For example, when the obligations ensuing from a banking transaction have to be renegotiated because the client is unable to fulfill them on their due date, it is often the case that the bank does not take advantage of the legal dependence of the client, i.e. it renegotiates instead of resorting immediately to legal instruments. This suggests that the legal dependence of clients is taken advantage of by the banks only when they perceive that the client firm is no longer viable, or they do not any longer trust the people in charge therein.

“Power” is meant in the sense of Thorelli (1990, p 444), i.e. the capability to influence others’ decisions or actions.

Most banks are much larger than their client firms, both in terms of number of workers, and in terms of assets, cash flow, etc. Besides, there are only a few tens of banks whilst there are some hundreds of thousands of firms. Finally, both as a consequence of the previously mentioned aspects, and also for historical reasons, banks benefit from a special social status among national economic agents, which provides them with the power to create and/or influence networks of relationships with economic agents, governmental bodies, politicians, etc.

In one of the cases studied, the control of the relationship seems to be on the side of the client and in another case the size of the client firm is a source of power, which “balances” the relationship; see Case “PAT” in Table 1.