Saturday, Jan. 6, 2018 12:30 PM - 2:15 PM
- Chair: Julapa Jagtiani, Federal Reserve Bank of Philadelphia
Global Banks and Syndicated Loan Spreads: Evidence From United States Banks
AbstractThis paper explores the relationship between bank global exposure and their syndicated loan spreads. Linking syndicated loan information from Dealscan with confidential US bank foreign exposure data and borrower characteristics, we find that more bank global exposure is associated with a higher loan spread that is statistically significant. To analyze this relationship between global banks and loan spreads, we develop a theoretical framework where, in equilibrium, riskier borrowers are more likely to work with global banks. Using a Heckman selection model, we confirm that borrower risk characteristics indeed predict a higher likelihood of having a loan arranged by a global bank. However, after controlling for the bank-borrower selection effect, we continue to find that global banks charge on average an 12.7 bps higher spread on their syndicated loans, as compared with domestically focused banks. Finally, we explore a non-risk based alternative where firms with multinational operations are more likely to work with global banks for international
Credit Default Swaps and Bank Loan Sales: Evidence From Bank Syndicated Lending
AbstractWe empirically examine three channels in the relation between banks’ CDS trading and loan sales. The substitute channel predicts a negative relation between CDS hedging and loan sales, and the complementary channel predicts a positive relation. The credit-enhancement channel predicts a positive relation between banks’ CDS selling and loan sales. Using syndicated loan share ownership data of U.S. banks over the period 2001–2013, we find that the complementary channel dominates the substitute channel, and the credit-enhancement channel plays an important role in bank loan sales.
- G2 - Financial Institutions and Services