Joining Forces: Why Banks Syndicate Credit

Steven Ongena, Alex Osberghaus and Glenn Schepens
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Alex Osberghaus: University of Zurich - Department Finance; Swiss Finance Institute
Glenn Schepens: European Central Bank (ECB)

No 24-80, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Banks can grant loans to firms bilaterally or in syndicates. We study this choice by combining bilateral loan data with syndicated loan data. We show that loan size alone does not adequately explain syndication. Instead, banks' ability to manage risks and firm riskiness drive the choice to syndicate. Banks are more likely to syndicate loans if their risk-bearing capacity is low and if screening and monitoring come at a high cost. Syndicated loans are more expensive and more sensitive to loan risk than bilateral loans. Our findings contradict the hypothesis that reputable borrowers graduate to the syndicated loan market.

Keywords: syndicated loans; bank loans; credit market; funding structure; bank choice (search for similar items in EconPapers)
JEL-codes: D82 G21 G32 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2024-10
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2480

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