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Networks and Information in Credit Markets

Abhimanyu Gupta, Sotirios Kokas (), Alexander Michaelides () and Raoul Minetti
Additional contact information
Sotirios Kokas: University of Essex
Alexander Michaelides: Imperial College London

No 2023-1, Working Papers from Michigan State University, Department of Economics

Abstract: A large theoretical literature emphasizes financial networks, but empirical studies remain scarce. We exploit the overlapping bank portfolio structure of US syndicated loans to construct a financial network and characterize its evolution over time. Using techniques from spatial econometrics, we find large spillovers in lending conditions from peers’ decisions during normal times: a standard deviation increase in peer lending rates can increase a bank’s lending rate by 17 basis points. However, these spillovers vanish in a large recession. We rationalize these findings through the lens of a model of syndicate lending, where banks’ reliance on private signals rises during recessions.

Keywords: Financial networks; spillovers; cost of lending; syndicated loan market (search for similar items in EconPapers)
JEL-codes: C31 G21 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2023-03-03
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fdg, nep-mac, nep-net and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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