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Risk Taking and Interest Rates: Evidence from Decades in the Global Syndicated Loan Market

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  • Seung Jung Lee
  • Lucy Qian Liu
  • Viktors Stebunovs

Abstract

We study how low interest rates in the United States affect risk taking in the market of crossborder leveraged corporate loans. To the extent that actions of the Federal Reserve affect U.S. interest rates, our analysis provides evidence of a cross-border spillover effect of monetary policy. We find that before the crisis, lenders made ex-ante riskier loans to non- U.S. borrowers in response to a decline in short-term U.S. interest rates, and, after it, in response to a decline in longer-term U.S. interest rates. Economic uncertainty and risk appetite appear to play a limited role in explaining ex-ante credit risk. Our results highlight the potential policy challenges faced by central banks in affecting credit risk cycles in their own jurisdictions.

Suggested Citation

  • Seung Jung Lee & Lucy Qian Liu & Viktors Stebunovs, 2017. "Risk Taking and Interest Rates: Evidence from Decades in the Global Syndicated Loan Market," IMF Working Papers 2017/016, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/016
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    Cited by:

    1. Gregory J. Cohen & Melanie Friedrichs & Kamran Gupta & William Hayes & Seung Jung Lee & W. Blake Marsh & Nathan Mislang & Maya Shaton & Martin Sicilian, 2018. "The U.S. Syndicated Loan Market: Matching Data," Research Working Paper RWP 18-9, Federal Reserve Bank of Kansas City.
    2. Lee, Seung Jung & Liu, Lucy Qian & Stebunovs, Viktors, 2022. "Risk-taking spillovers of U.S. monetary policy in the global market for U.S. dollar corporate loans," Journal of Banking & Finance, Elsevier, vol. 138(C).
    3. Guillaume A. Khayat, 2017. "The Corridor's Width as a Monetary Policy Tool," Working Papers halshs-01611650, HAL.
    4. Buch, Claudia M. & Bussierè, Matthieu & Goldberg, Linda & Hills, Robert, 2019. "The international transmission of monetary policy," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 29-48.
    5. Calem, Paul & Correa, Ricardo & Lee, Seung Jung, 2020. "Prudential policies and their impact on credit in the United States," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    6. Matthys, Thomas & Meuleman, Elien & Vander Vennet, Rudi, 2020. "Unconventional monetary policy and bank risk taking," Journal of International Money and Finance, Elsevier, vol. 109(C).
    7. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2018. "Global Investors, the Dollar, and U.S. Credit Conditions," CEPR Discussion Papers 13237, C.E.P.R. Discussion Papers.
    8. Zekeriya Yildirim & Mehmet Ivrendi, 2021. "Spillovers of US unconventional monetary policy: quantitative easing, spreads, and international financial markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-38, December.
    9. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2023. "Institutional investors, the dollar, and U.S. credit conditions," Journal of Financial Economics, Elsevier, vol. 147(1), pages 198-220.
    10. John Ammer & Alexandra Tabova & Stijn Claessens, 2018. "Searching for Yield Abroad: Risk-Taking through Foreign Investment in U.S. Bonds," 2018 Meeting Papers 960, Society for Economic Dynamics.
    11. Leonidas Paroussos & Kostas Fragkiadakis & Panagiotis Fragkos, 2020. "Macro-economic analysis of green growth policies: the role of finance and technical progress in Italian green growth," Climatic Change, Springer, vol. 160(4), pages 591-608, June.
    12. Friederike Niepmann & Tim Schmidt‐Eisenlohr & Emily Liu, 2021. "The effect of US stress tests on monetary policy spillovers to emerging markets," Review of International Economics, Wiley Blackwell, vol. 29(1), pages 165-194, February.
    13. Aramonte, Sirio & Lee, Seung Jung & Stebunovs, Viktors, 2022. "Risk taking and low longer-term interest rates: Evidence from the U.S. syndicated term loan market," Journal of Banking & Finance, Elsevier, vol. 138(C).

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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
    • F30 - International Economics - - International Finance - - - General
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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