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

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

No 16-16R2, Working Papers from Federal Reserve Bank of Cleveland

Abstract: We formulate and test two opposing hypotheses about how lead banks in the syndicated loan market use private information about loan quality, the Signaling Hypothesis and Sophisticated Syndicate Hypothesis. We use Shared National Credit (SNC) internal loan ratings made comparable using concordance tables to measure private information. We find favorable private information is associated with higher lead bank loan retention and lower interest rate spreads for pure term loans, ceteris paribus, supporting the Signaling Hypothesis. Neither hypothesis dominates for pure revolvers. The data partially support two conjectures about the circumstances under which the two hypotheses are more likely to hold.

Keywords: private information; loan sales; syndication; Lead bank (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2017-11-29
New Economics Papers: this item is included in nep-ban
Note: This is the second revision of this paper. First version June 2016. First revision January 2017.
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https://doi.org/10.26509/frbc-wp-201616r2 Full text (text/html)

Related works:
Journal Article: How do lead banks use their private information about loan quality in the syndicated loan market? (2019)
Working Paper: How Do Lead Banks Use Their Private Information about Loan Quality in the Syndicated Loan Market? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwq:161602

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DOI: 10.26509/frbc-wp-201616r2

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