Systemic risk-taking at banks: Evidence from the pricing of syndicated loans

Wolf Wagner () and Di Gong

No 11150, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Public guarantees extended during systemic crises can affect the relative pricing of risks in the financial system. Studying the market for syndicated loans, we find that banks require lower compensation for aggregate risk than for idiosyncratic risk, consistent with systemic risk-taking due to guarantees. The underpricing of aggregate risk is concentrated among banks that benefit more from exposure to public guarantees and disappears for non-bank lenders not protected by these guarantees. Estimates from loan spread regressions imply a sizeable guarantee that is passed onto borrowers, but also distortions in the economy’s capital allocation.

Keywords: Public guarantees; Too-many-to-fail; Systemic risk-taking; Loan pricing (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-ban and nep-rmg
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Citations: View citations in EconPapers (5)

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