It Takes More than Two to Tango: Understanding the Dynamics behind Multiple Bank Lending and its Implications
Konstantin Kosenko () and
Noam Michelson ()
Additional contact information
Noam Michelson: BOI
No 2018.11, Bank of Israel Working Papers from Bank of Israel
In this paper we investigate the matching process between banks and large borrowers that switch from single to multiple bank lending relationships in the corporate loan market. Using a unique dataset on all large credit exposures (about 214,000) of all Israeli commercial banks in the period between 2005 and 2015, we highlight the systemic externalities of micro-prudential regulation. We find, inter alia, that regulatory limits on credit exposures aimed at limiting an individual bank's concentration risk lead large borrowers to turn to multiple lending. This increases the level of asset commonality among banks, and the systemic risk arising from this indirect contagion channel. We find that large borrowers are more likely to establish a new lending relationship with big banks and with the banks that are familiar with the borrower's business profile, whether through existing loans to a group of borrowers to which the borrower belongs, or through acquaintance with the industry in which the borrower operates. Furthermore, we find that borrowers tend to establish a new lending relationship with banks whose asset portfolio is correlated with that of their original lender. This result may possibly be related to the tendency of banks to become more similar in their credit portfolios in order to benefit from a "too many to fail" implicit guarantee
Keywords: bank lending; overlapping portfolios; diversification; bank regulation; interconnectedness (search for similar items in EconPapers)
JEL-codes: G11 G21 G28 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
ftp://repec-boi.northeurope.cloudapp.azure.com/RePEc/boi/wpaper/WP_2018.11.pdf First version, 2018 (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:boi:wpaper:2018.11
Access Statistics for this paper
More papers in Bank of Israel Working Papers from Bank of Israel Contact information at EDIRC.
Bibliographic data for series maintained by Dafna Koby ().