Risk Taking and Interest Rates: Evidence from Decades in the Global Syndicated Loan Market

Seung Jung Lee, Lucy Qian Liu () and Viktors Stebunovs

No 2017/016, IMF Working Papers from International Monetary Fund

Abstract: We study how low interest rates in the United States affect risk taking in the market of crossborder leveraged corporate loans. To the extent that actions of the Federal Reserve affect U.S. interest rates, our analysis provides evidence of a cross-border spillover effect of monetary policy. We find that before the crisis, lenders made ex-ante riskier loans to non- U.S. borrowers in response to a decline in short-term U.S. interest rates, and, after it, in response to a decline in longer-term U.S. interest rates. Economic uncertainty and risk appetite appear to play a limited role in explaining ex-ante credit risk. Our results highlight the potential policy challenges faced by central banks in affecting credit risk cycles in their own jurisdictions.

Keywords: WP; term loan; U.S. dollar; federal funds rate; monetary policy; Syndicated loans; risk taking; international spillovers; loan spread; EME borrower; Loans; Credit risk; Short term interest rates; Market risk; Global (search for similar items in EconPapers)
Pages: 47
Date: 2017-01-27
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Citations: View citations in EconPapers (20)

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Working Paper: Risk Taking and Interest Rates: Evidence from Decades in the Global Syndicated Loan Market (2017)
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