The crisis as a wake-up call. Do banks tighten screening and monitoring standards during a financial crisis?

de Haas, Ralph and van Horen, Neeltje (2009): The crisis as a wake-up call. Do banks tighten screening and monitoring standards during a financial crisis?

Abstract

We examine whether the global financial crisis has prompted banks to take corrective action with regard to their screening and monitoring. By analyzing almost 15,000 syndicated loans to private borrowers across 65 countries over the period 2005-2009, we find that banks stepped up their screening and monitoring efforts in response to the crisis. This is evidenced by a significant increase in retention rates among syndicate arrangers. These higher retention rates (‘more skin in the game’) were only partially caused by increased borrower risk. They mainly reflect a more fundamental shift towards more stringent screening and monitoring during the crisis: the wake-up call effect.

• Item Type: MPRA Paper
• Language: English
• Keywords: bank lending; financial crisis; retention rates; screening and monitoring; 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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