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How do lead banks use their private information about loan quality in the syndicated loan market?

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  • Balasubramanyan, Lakshmi
  • Berger, Allen N.
  • Koepke, Matthew M.

Abstract

We formulate and test hypotheses about how lead banks of syndicated loans use private information about loan quality, the Signaling and Sophisticated Syndicate Hypotheses. We measure private information using Shared National Credit (SNC) internal loan ratings made comparable using concordance tables. As outcomes, we use proportions of loans retained by lead banks from SNC and rate spreads on the loans from DealScan. We find favorable private information is associated with higher retention and lower spreads for pure term loans, supporting the Signaling Hypothesis. Only lower spreads occur for pure revolvers, likely because their syndicates more often include large sophisticated banks.

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  • Balasubramanyan, Lakshmi & Berger, Allen N. & Koepke, Matthew M., 2019. "How do lead banks use their private information about loan quality in the syndicated loan market?," Journal of Financial Stability, Elsevier, vol. 43(C), pages 53-78.
    • Handle: RePEc:eee:finsta:v:43:y:2019:i:c:p:53-78
    DOI: 10.1016/j.jfs.2019.03.006
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    More about this item

    Keywords

    Lead bank; Private information; Syndication;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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