A Comparison of Syndicated Loan Pricing at Investment and Commercial Banks

Maretno Harjoto, Donald Mullineaux and Ha-Chin Yi

Financial Management, 2006, vol. 35, issue 4

Abstract: We reject the hypothesis that investment and commercial banks have identical loan-pricing policies. We find that compared to commercial banks, investment banks lend to less profitable, more leveraged firms, price riskier classes of term loans more generously, and offer relativelylonger-term credits, usually with term, not commitment contracts. Investment banks typically establish higher credit spreads, although the premium declines when a commercial bank joins as syndicate co-arranger. Investment banks also price riskier classes of term loans more generously to borrowers than do commercial banks. Commercial-bank funding advantages do not appear to be a source of the pricing differences.

Date: 2006
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