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Syndicated Lending

Date post: 23-Feb-2016
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Syndicated Lending. Bank loans in which a lead bank “originates” a loan and lines up other financial institutions to share a portion of the loans. Borrowers are large. - PowerPoint PPT Presentation
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Syndicated Lending• Bank loans in which a lead bank “originates” a loan and lines

up other financial institutions to share a portion of the loans.– Borrowers are large.

• Syndicate includes other non-bank financial institutions – investment banks like Goldman Sachs and finance companies such as GE capital – as well as institutional investors like CLOs, hedge funds, mutual funds, insurance companies, and pension funds.

• Syndicated loan market is part of “shadow banking system”

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To Separate Supply and Demand

• Look at relationship between lending and reliance on short-term debt (rather than insured deposits). – If banks with greater reliance on short-term debt cut lending

more, that would be evidence of decline in a loan supply.

• Look at relationship between lending and vulnerability to credit-line drawdowns. – If banks with more vulnerability to credit-line drawdowns cut

lending more, that would be evidence of a decline in loan supply.

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Evidence• A bank with the median deposits-to-assets ratio reduced its

monthly number of loan originations by 36% between August and December 2008.

• A bank with a deposits-to-assets ratio one standard deviation below the mean (i.e., greater reliance on short-term debt than the mean) reduced loan originations by 49%.

• A bank with a deposits-to-assets ratio one standard deviation above the mean (i.e., less reliance on short-term debt than the mean) reduced loan originations by 21%.

Evidence of Decline in Loan Supply

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Link Between Unexpected Drawdowns and Loans

• Focus on banks that co-syndicated revolvers with Lehman (other banks would have to pick up slack).

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Evidence• Banks that co-syndicated a larger fraction of

their revolving credit lines with Lehman reduced their lending more. – Banks with a one standard deviation higher

exposure to Lehman (than point estimate in table 6) experienced a 44% drop in lending.

– Banks with a one standard deviation lower exposure to Lehman (than point estimate in table 6) experienced a 25% drop in lending.

Evidence of Decline in Loan Supply


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