Bank will of course monitor firms that they lend to. Sometimes a firm will develop a long- term relationship with a bank. Relationship banking might be beneficial to the borrowing firm on at least two counts. First, the firm might be beneficial to the borrowing firm on at least two counts. First, the firm might be able to get a favorable interest rate from its bank.
Second, the firm may feel it will be easier to renegotiate debt contracts (if necessary) with a single lender (i.e. the bank) than with disperse lenders (i.e. bondholders).
However, getting favorable rates from banks often entails the firm having to expose private information to the bank. For example , a firm may wish to borrow billions of dollars to the embark on a new project. The firm could issue public debt (i.e. bonds) but may find that the interest rate (i.e. coupon rate) is too high for one reason or another (e.g. the firm could already have a lot of debt, the firm could have little collateral assets ,etc.). The firm could opt to borrow from a bank rate. As a single lender, it is easy for a bank to enforce covenants. Therefore the bank may end up having too much power over its borrowers.