IDEAS home Printed from https://ideas.repec.org/a/fip/fedfer/y1995p52-62n3.html
   My bibliography  Save this article

Structure and pricing of large bank loans

Author

Listed:
  • James R. Booth
  • Lena Chua

Abstract

This paper examines the characteristics of large bank loans as a form of corporate finance. We compare the characteristics of a sample of these loans with private placements and public issues of debt. The unique features of large bank loans that may encourage firms to continue using this source of financing include: borrower flexibility in deciding on the timing and amount of borrowing; the use of fixed-spread floating rate of interest, flexibility of changing and renegotiating contract features, such as covenants, during the life of the contract.

Suggested Citation

  • James R. Booth & Lena Chua, 1995. "Structure and pricing of large bank loans," Economic Review, Federal Reserve Bank of San Francisco, pages 52-62.
    • Handle: RePEc:fip:fedfer:y:1995:p:52-62:n:3
    as

    Download full text from publisher

    File URL: https://fraser.stlouisfed.org/title/economic-review-federal-reserve-bank-san-francisco-869/1995-520416?page=31
    File Function: Full Text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
    2. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
    3. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    4. Willard T. Carleton & Simon H. Kwan, 1995. "The role of private placement debt issues in corporate finance," Working Papers in Applied Economic Theory 95-13, Federal Reserve Bank of San Francisco.
    5. Avery, Robert B. & Berger, Allen N., 1991. "Loan commitments and bank risk exposure," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 173-192, February.
    6. Thakor, Anjan V. & Udell, Gregory F., 1987. "An economic rationale for the pricing structure of bank loan commitments," Journal of Banking & Finance, Elsevier, vol. 11(2), pages 271-289, June.
    7. Berger, Allen N. & Udell, Gregory F., 1990. "Collateral, loan quality and bank risk," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 21-42, January.
    8. Mitchell Berlin, 1986. "Loan commitments: insurance contracts in a risky world," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-12.
    9. Eckbo, B. Espen, 1986. "Valuation effects of corporate debt offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 119-151.
    10. Thomas F. Brady, 1985. "Changes in loan pricing and business lending at commercial banks," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-13.
    11. Mark S. Carey & Stephen D. Prowse & John Rea & Gregory F. Udell, 1993. "The economics of the private placement market," Staff Studies 166, Board of Governors of the Federal Reserve System (U.S.).
    12. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Issam Hallak, 2001. "The Determinants of Up-Front Fees on Bank Loans to LDC Sovereigns," Economics Series Working Papers 75, University of Oxford, Department of Economics.
    2. Kleimeier, S. & Megginson, W.L., 2002. "An empirical analysis of limited recourse project finance," Research Memorandum 066, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    3. Rosman, Andrew J. & Bedard, Jean C., 1999. "Lenders' Decision Strategies and Loan Structure Decisions," Journal of Business Research, Elsevier, vol. 46(1), pages 83-94, September.
    4. Hallak, Issam, 2003. "Bank loans non-linear structure of pricing: Empirical evidence from sovereign debts," CFS Working Paper Series 2003/33, Center for Financial Studies (CFS).
    5. Hallak, Issam, 2009. "Renegotiation and the pricing structure of sovereign bank loans: Empirical evidence," Journal of Financial Stability, Elsevier, vol. 5(1), pages 89-103, January.
    6. Beatty, Anne & Ramesh, K. & Weber, Joseph, 2002. "The importance of accounting changes in debt contracts: the cost of flexibility in covenant calculations," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 205-227, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Allen N. Berger & Gregory F. Udell, 1994. "Lines of credit and relationship lending in small firm finance," Proceedings 52, Federal Reserve Bank of Chicago.
    2. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    3. Chen, Andrew H. & Mazumdar, Sumon C. & Yan, Yuxing, 2000. "Monitoring and bank loan pricing," Pacific-Basin Finance Journal, Elsevier, vol. 8(1), pages 1-24, March.
    4. Simon H. Kwan & Willard T. Carleton, 2010. "Financial Contracting and the Choice between Private Placement and Publicly Offered Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 907-929, August.
    5. Cetorelli, Nicola & Peretto, Pietro F., 2012. "Credit quantity and credit quality: Bank competition and capital accumulation," Journal of Economic Theory, Elsevier, vol. 147(3), pages 967-998.
    6. Issam Hallak, 2001. "The Determinants of Up-Front Fees on Bank Loans to LDC Sovereigns," Economics Series Working Papers 75, University of Oxford, Department of Economics.
    7. Berger, Allen N. & Herring, Richard J. & Szego, Giorgio P., 1995. "The role of capital in financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 393-430, June.
    8. Mark S. Carey & Stephen D. Prowse & John Rea & Gregory F. Udell, 1993. "The economics of the private placement market," Staff Studies 166, Board of Governors of the Federal Reserve System (U.S.).
    9. Dennis, Steven A. & Mullineaux, Donald J., 2000. "Syndicated Loans," Journal of Financial Intermediation, Elsevier, vol. 9(4), pages 404-426, October.
    10. Mark Carey & Greg Nini, 2007. "Is the Corporate Loan Market Globally Integrated? A Pricing Puzzle," Journal of Finance, American Finance Association, vol. 62(6), pages 2969-3007, December.
    11. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1283-1316, October.
    12. Charles J. Hadlock & Christopher M. James, 2002. "Do Banks Provide Financial Slack?," Journal of Finance, American Finance Association, vol. 57(3), pages 1383-1419, June.
    13. Gorton, G. & Khan, J., 1992. "The Design of Bank Loan Contracts, Collateral, and Renegociation," RCER Working Papers 327, University of Rochester - Center for Economic Research (RCER).
    14. Pappas, Kostas & Walsh, Eamonn & Xu, Alice Liang, 2019. "Real earnings management and loan contract terms," The British Accounting Review, Elsevier, vol. 51(4), pages 373-401.
    15. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    16. Francis, Bill B. & Hasan, Iftekhar & John, Kose & Waisman, Maya, 2010. "The effect of state antitakeover laws on the firm's bondholders," Journal of Financial Economics, Elsevier, vol. 96(1), pages 127-154, April.
    17. Randall S. Kroszner & Philip E. Strahan, 1999. "Bankers on Boards: Monitoring, Conflicts of Interest, and Lender Liability," NBER Working Papers 7319, National Bureau of Economic Research, Inc.
    18. Fungáčová, Zuzana & Godlewski, Christophe J. & Weill, Laurent, 2020. "Does the type of debt matter? Stock market perception in Europe," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 247-256.
    19. Berger, Allen N. & Boot, Arnoud W.A., 2024. "Financial intermediation services and competition analyses: Review and paths forward for improvement," Journal of Financial Intermediation, Elsevier, vol. 57(C).
    20. John Armour, 2006. "Should we redistribute in insolvency," Working Papers wp319, Centre for Business Research, University of Cambridge.

    More about this item

    Keywords

    Bank loans; Interest rates;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedfer:y:1995:p:52-62:n:3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Federal Reserve Bank of San Francisco Research Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbsfus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.