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Joining forces: why banks syndicate credit

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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

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  • 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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    1. Jan-Peter Siedlarek & Vladimir Yankov, 2025. "The Secondary Market for Syndicated Loans," Working Papers 25-10, Federal Reserve Bank of Cleveland.

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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