Corporate Access to Bank Credit is Often Linked to the Purchase of Other Services

Large companies are more likely to be subject to pressure from commercial banks, according to a survey by the Association for Financial Professionals

BETHESDA, MD -- MARCH 18, 2003 -- Financial professionals report that commercial banks frequently make access to corporate credit contingent upon the purchase of other services. According to a survey conducted by the Association for Financial Professionals (AFP), most large companies indicate that the pressure to award other financial business to commercial banks is increasing. The January survey generated nearly 700 responses.

Fifty-six percent of companies with annual revenues greater than $1 billion report that a commercial bank denied credit or changed the terms of credit after the company did not award other financial business, such as investment banking or strategic advisory services. Further, three out of five large companies report that the pressure to award additional business has increased over the last year.

In August 2002, responding to a congressional inquiry, the Federal Reserve and the Office of the Comptroller of the Currency stated that they had not identified any prohibited tying activity by commercial banks. They also indicated that they are undertaking further review.

"Our members have consistently expressed a concern about their company's access to credit being contingent upon the purchase of additional services," said AFP's President and CEO Jim Kaitz. "This survey demonstrates the need for further investigation into this matter."

Eighty-three percent of large company respondents expect adverse consequences if they do not award other financial business to credit providers. These consequences include one or more of the following: denial of credit, reduction in the amount of credit or higher priced credit. As a result, most large companies are proactively awarding some of their financial business to credit providers.

The Association for Financial Professionals in Bethesda, Maryland, supports more than 14,000 individual members from a wide range of industries throughout all stages of their careers in various aspects of treasury and financial management. AFP is the preferred resource for financial professionals for continuing education, financial tools and publications, career development, certifications, research, representation to legislators and regulators, and the development of industry standards.