The strategic behavior of banks during a financial crisis; evidence from the syndicated loan market

de Haas, Ralph and van Horen, Neeltje (2009): The strategic behavior of banks during a financial crisis; evidence from the syndicated loan market.

Abstract

We examine the strategic reaction of banks to the current global financial crisis. In particular, we test whether banks predominantly react by diversifying their loan portfolio or by stepping up their screening and monitoring. To this end we analyze information on nearly 17,000 syndicated loans that were granted to private borrowers in 60 countries over the period 2005-2008. We exploit the variation in lender and borrower characteristics to examine whether banks’ risk-mitigating strategies differ across borrower types. Our results show that during a financial crisis arranging banks retain larger portions of loans and form more concentrated syndicates, reflecting an increased need to screen and monitor borrowers. During a crisis, agency problems are attenuated in syndicates that lend to repeat borrowers and that are composed by experienced arrangers.

• Item Type: MPRA Paper
• Language: English
• Keywords: bank lending; financial crisis; asymmetric information; syndication
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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