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The crisis as a wake-up call. Do banks tighten screening and monitoring standards during a financial crisis?

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Author Info
de Haas, Ralph
van Horen, Neeltje

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Abstract

We examine whether the global financial crisis has prompted banks to take corrective action with regard to their screening and monitoring. By analyzing almost 15,000 syndicated loans to private borrowers across 65 countries over the period 2005-2009, we find that banks stepped up their screening and monitoring efforts in response to the crisis. This is evidenced by a significant increase in retention rates among syndicate arrangers. These higher retention rates (‘more skin in the game’) were only partially caused by increased borrower risk. They mainly reflect a more fundamental shift towards more stringent screening and monitoring during the crisis: the wake-up call effect.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14164.

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Date of creation: Oct 2009
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Handle: RePEc:pra:mprapa:14164

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Related research
Keywords: bank lending; financial crisis; retention rates; screening and monitoring; syndication;

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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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  1. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August. [Downloadable!] (restricted)
  2. Dennis, Steven A. & Mullineaux, Donald J., 2000. "Syndicated Loans," Journal of Financial Intermediation, Elsevier, vol. 9(4), pages 404-426, October. [Downloadable!] (restricted)
  3. Rajan, Raghuram G, 1994. "Why Bank Credit Policies Fluctuate: A Theory and Some Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 399-441, May. [Downloadable!] (restricted)
  4. De Haas, Ralph & van Lelyveld, Iman, 2009. "Internal Capital Markets and Lending by Multinational Bank Subsidiaries," MPRA Paper 13164, University Library of Munich, Germany. [Downloadable!]
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  5. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February. [Downloadable!] (restricted)
  6. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January. [Downloadable!] (restricted)
  7. Allen, Franklin, 1990. "The market for information and the origin of financial intermediation," Journal of Financial Intermediation, Elsevier, vol. 1(1), pages 3-30, March. [Downloadable!] (restricted)
  8. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 393-414, July. [Downloadable!] (restricted)
  9. Amir Sufi, 2007. "Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans," Journal of Finance, American Finance Association, vol. 62(2), pages 629-668, 04. [Downloadable!] (restricted)
  10. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August. [Downloadable!] (restricted)
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  11. Berger, Allen N. & Udell, Gregory F., 2004. "The institutional memory hypothesis and the procyclicality of bank lending behavior," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 458-495, October. [Downloadable!] (restricted)
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  12. Katerina Simons, 1993. "Why do banks syndicate loans?," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 45-52.
  13. Jonathan D. Jones & William W. Lang & Peter J. Nigro, 2005. "Agent Bank Behavior In Bank Loan Syndications," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 28(3), pages 385-402. [Downloadable!] (restricted)
  14. Chowdhry, Bhagwan, 1991. "What Is Different about International Lending?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 4(1), pages 121-48. [Downloadable!] (restricted)
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