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How Do Lead Banks Use Their Private Information about Loan Quality in the Syndicated Loan Market?

Lakshmi Balasubramanyan (), Allen Berger () and Matthew Koepke

No 1616, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: Little is known about how lead banks in the syndicated loan market use their private information about loan quality. We formulate and test two hypotheses, the Signaling Hypothesis and Sophisticated Syndicate Hypothesis. To measure private information, we use Shared National Credit (SNC) internal loan ratings, which we make comparable across banks using concordance tables. We find that favorable private information is associated with higher loan retention by lead banks for term loans, consistent with empirical domination of the Signaling Hypothesis, while neither hypothesis dominates for revolvers. Differences in syndicate structure at least partially explain this disparity.

Keywords: lead bank; private information; loan sales; syndication (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2016-06-30
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-ger
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: How do lead banks use their private information about loan quality in the syndicated loan market? (2019) Downloads
Working Paper: How Do Lead Banks Use Their Private Information about Loan Quality in the Syndicated Loan Market? (2017) Downloads
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