Leveraged finance exposure in the banking system: Systemic risk and interconnectedness

G. De Novellis, P. Musile Tanzi, M.G. Ranalli and Elena Stanghellini

Journal of International Financial Markets, Institutions and Money, 2024, vol. 90, issue C

Abstract: In the post-pandemic era, the exposure to leveraged finance has emerged as a key factor of vulnerability for banks, coping with increasing inflation and interest rates. For this reason, the growth of the leveraged loans market is receiving significant attention from the Authorities (e.g. ECB, 2022). In this paper, we analyze an original sample of leveraged loans (1699) that combines instrument-specific information and the composition of the syndicates, with a specific focus on the G-SIBs participation from 2014 to 2021. The aim is to identify risk indicators that take into account the G-SIBs exposure to risky leveraged loans, the potential impact of the banks’ size and their interconnectedness. For this purpose, using M-Quantile regression for binary data, it is possible to obtain a first indicator measuring heterogeneity among banks in terms of credit risk exposure, a second indicator that combines the previous one with the banks’ size, and a third indicator as a measure of interconnectedness between banks.

Keywords: Leveraged finance; Syndicated loans; Systemic risk; Interconnectedness; Credit risk exposure (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 G32 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:90:y:2024:i:c:s1042443123001580

DOI: 10.1016/j.intfin.2023.101890

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