On the impact of leveraged buyouts on bank systemic risk

Marcel Grupp

No 101, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: Although banks are at the center of systemic risk, there are other institutions that contribute to it. With the publication of the leveraged lending guideline in March 2013, the U.S. regulators show that they are especially worried about the private equity firms with their high-risk deals. Given these risks and the interconnectedness of the banks through the LBO loan syndicates, I shed light on the impact of a bank's LBO loan exposure on its systemic risk. By using 3,538 observations between 2000 and 2013 from 165 global banks, I show that banks with higher LBO exposure also have a higher level of systemic risk. Other loan purposes do not show this positive relationship. The main drivers influencing this relationship positively are the bank's interconnectedness to other LBO financing banks and its size. Lending experience with a specific PE sponsor, experience with leading LBO syndicates or a bank's credit rating, however, lead to a lower impact of the LBO loan exposure on systemic risk.

Keywords: leveraged buyouts; syndicated loans; systemic risk (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:101

DOI: 10.2139/ssrn.2602220

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