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Joining forces: why banks syndicate credit

Author

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  • Ongena, Steven
  • Osberghaus, Alex
  • Schepens, Glenn

Abstract

Banks can grant loans to firms bilaterally or in syndicates. We study this choice by combining bilateral loan data with syndicated loan data. We show that loan size alone does not adequately explain syndication. Instead, banks’ ability to manage risks and firm riskiness drive the choice to syndicate. Banks are more likely to syndicate loans if their risk-bearing capacity is low and if screening and monitoring come at a high cost. Syndicated loans are more expensive and more sensitive to loan risk than bilateral loans. Our findings contradict the hypothesis that reputable borrowers graduate to the syndicated loan market. JEL Classification: E44, E52, E58, E63, F45, G20, G21

Suggested Citation

  • Ongena, Steven & Osberghaus, Alex & Schepens, Glenn, 2025. "Joining forces: why banks syndicate credit," Working Paper Series 3149, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253149
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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