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Liquidity Risk and Syndicate Structure

  • Evan Gatev
  • Philip Strahan
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    We offer a new explanation of loan syndicate structure based on banks' comparative advantage in managing systematic liquidity risk. When a syndicated loan to a rated borrower has systematic liquidity risk, the fraction of passive participant lenders that are banks is about 8% higher than for loans without liquidity risk. In contrast, liquidity risk does not explain the share of banks as lead lenders. Using a new measure of ex-ante liquidity risk exposure, we find further evidence that syndicate participants specialize in liquidity-risk management while lead banks manage lending relationships. Links from transactions deposits to liquidity exposure are about 50% larger at participant banks than at lead arrangers.

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    File URL: http://www.nber.org/papers/w13802.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13802.

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    Date of creation: Feb 2008
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    Publication status: published as Gatev, Evan & Strahan, Philip E., 2009. "Liquidity risk and syndicate structure," Journal of Financial Economics, Elsevier, vol. 93(3), pages 490-504, September.
    Handle: RePEc:nbr:nberwo:13802
    Note: CF
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