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Risk taking and low longer-term interest rates: Evidence from the U.S. syndicated term loan market

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  • Aramonte, Sirio
  • Lee, Seung Jung
  • Stebunovs, Viktors

Abstract

We use supervisory data to investigate the ex-ante credit risk taken by different types of lenders in the U.S. syndicated term loan market during the LSAPs period. We find that nonbank lenders, mutual funds and structured-finance vehicles, take higher risk when longer-term interest rates decrease. The results are stronger for mutual funds that charge higher fees. Banks accommodate other lenders’ investment choices by originating riskier loans and selling them off. These results are consistent with “search for yield” by nonbanks and with a risk-taking channel of monetary policy. Over the sample we study, lower longer-term interest rates appear to have only a minimal effect on loan spreads.

Suggested Citation

  • Aramonte, Sirio & Lee, Seung Jung & Stebunovs, Viktors, 2022. "Risk taking and low longer-term interest rates: Evidence from the U.S. syndicated term loan market," Journal of Banking & Finance, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:jbfina:v:138:y:2022:i:c:s0378426619300354
    DOI: 10.1016/j.jbankfin.2019.02.010
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    Cited by:

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    2. Bassi, Claudio & Grill, Michael & Mirza, Harun & O’Donnell, Charles & Wedow, Michael & Hermes, Felix, 2024. "Enhancing repo market transparency: the EU Securities Financing Transactions Regulation," Occasional Paper Series 342, European Central Bank.
    3. Mary Chen & Seung Jung Lee & Daniel Neuhann & Farzad Saidi, 2023. "Less Bank Regulation, More Non-Bank Lending," Finance and Economics Discussion Series 2023-026, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Syndicated term loans; Shared National Credit Program; Shadow banking; Zero lower bound; Search for yield; Risk-taking channel of monetary policy;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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