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

  • Ralph de Haas
  • Neeltje van Horen

To what extent was the credit contraction during the global financial crisis due to more intense screening and monitoring by banks? We address this question by analyzing changes in the structure of a large number of syndicated loans to private, non-financial corporations. We find an increase in retention rates among syndicate arrangers during the crisis that we cannot explain by borrower risk or interbank liquidity alone. This increased 'skin in the game' is especially pronounced when information asymmetries between the borrower and the lending syndicate - or within the syndicate - are high. This indicates that the reduction in bank lending during the crisis was at least partly caused by stricter bank screening and monitoring: a wake-up call.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 255.

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Date of creation: Jul 2010
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Handle: RePEc:dnb:dnbwpp:255
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Web page: http://www.dnb.nl/en/

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  1. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
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  12. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2000. "Inside the crisis : an empirical analysis of banking systems in distress," Policy Research Working Paper Series 2431, The World Bank.
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  18. Christophe J. Godlewski, 2008. "What Drives the Arrangement Timetable of Bank Loan Syndication ?," Working Papers of LaRGE Research Center 2008-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  19. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March.
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