Working Paper: NBER ID: w13802
Authors: Evan Gatev; Philip Strahan
Abstract: We offer a new explanation of loan syndicate structure based on banks' comparative advantage in managing systematic liquidity risk. When a syndicated loan to a rated borrower has systematic liquidity risk, the fraction of passive participant lenders that are banks is about 8% higher than for loans without liquidity risk. In contrast, liquidity risk does not explain the share of banks as lead lenders. Using a new measure of ex-ante liquidity risk exposure, we find further evidence that syndicate participants specialize in liquidity-risk management while lead banks manage lending relationships. Links from transactions deposits to liquidity exposure are about 50% larger at participant banks than at lead arrangers.
Keywords: Liquidity Risk; Syndicated Loans; Banking
JEL Codes: G21; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| banks' access to transaction deposits (G21) | banks' ability to hedge against liquidity shocks (G21) |
| lead lenders' relationship management (G21) | significance of liquidity risk for lead lenders (G33) |
| banks' comparative advantage in managing systematic liquidity risk (G21) | banks' dominance in syndicated loans (G21) |
| systematic liquidity risk (P34) | bank participation in syndicates (G21) |
| liquidity risk (G33) | fraction of passive participant lenders that are banks (G21) |
| liquidity risk (G33) | bank dominance in lines of credit (G21) |