Abstract: Cyclicality in the supply of business credit has been the focus of a considerable amount of research. This cyclicality can stem from shocks to borrowers’ collateral, which affect firms’ ability to raise capital if agency and information problems are significant (Ben S. Bernanke and Mark Gertler 1989). Or it can stem from shocks to bank capital, which affect the supply of bank loans if agency and information problems limit the ability of banks to raise additional capital (Bernanke 1983). Both of these channels may have been at work during the financial crisis that started in 2007. Ran Duchin, Oguzhan Ozbas, and Berk A. Sensoy (2010) show that firms with more collateral were better able to withstand the contraction in credit, and Victoria Ivashina and David Scharfstein (2010) show that reductions in bank capital had an adverse effect on lending. In this paper, we examine cyclicality in the supply of credit in the context of modern forms of banking, often referred to as the “originateto-distribute” model. In particular, we are interested in the role of syndicated lending. In traditional bank lending—the focus of most models of banking—banks originate and hold loans on their balance sheets. This exposes banks to risk but provides them with strong incentives to screen and monitor borrowers (Douglas W. Diamond 1984). Over the last 20 years, however, the development and growth of the syndicated loan market has enabled a bank to originate a loan but retain only a fraction of it. On average, the originating bank (or “lead bank”) retains about a third of each syndicated loan and sells the remaining share to a syndicate of investors, which includes banks and institutional investors such as pension funds, mutual funds, hedge funds, and sponsors of structured Loan Syndication and Credit Cycles
Publication Year: 2010
Publication Date: 2010-05-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 144
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