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Do Syndicated Loans Influence Systemic Risk? An Empirical Analysis of the Canadian Syndicated Loan Market

Author

Listed:
  • Line Drapeau

    (Business Faculty, Sherbrooke University, office K1-4101 2500, boulevard de l'Universit¨¦, Sherbrooke, Qu¨¦bec, J1K 2R1, CANADA)

  • Claudia Champagne

    (Business Faculty, Sherbrooke University, office K1-4104 2500, boulevard de l'Universit¨¦, Sherbrooke, Qu¨¦bec, J1K 2R1, CANADA)

Abstract

This study examines the impact of syndicated loans on individual and national diversity of loan portfolios of the six largest Canadian banks, as well as their marginal contribution to Canadian systemic risk. To test the marginal impact of Canadian syndicated loans on risk, we use a simulation of fictitious loan portfolios to create benchmarks based on syndicated loans along with Hirschman-Herfindahl index and Euclidian distance measures. Our results show that syndicated loans have a positive impact on industrial diversity for each bank's loan portfolio. Empirical results also suggest that lenders¡¯ involvement in industries in which they lack expertise tends to develop a more homogeneous and concentrated national loan portfolio. Finally, we conclude that the homogenization of loan portfolios and the concentration of the national loan portfolio have an ambiguous impact on Canadian systemic risk. Specifically, the impact depends on the systemic risk measure and an industry effect is present.

Suggested Citation

  • Line Drapeau & Claudia Champagne, 2015. "Do Syndicated Loans Influence Systemic Risk? An Empirical Analysis of the Canadian Syndicated Loan Market," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 22-41, November.
    • Handle: RePEc:bap:journl:150402
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Diversity of loan portfolios£¬ Homogenization£¬ Concentration£¬ Interconnectedness£¬Network theory;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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