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Joining Forces: Why Banks Syndicate Credit

Author

Listed:
  • Steven Ongena

    (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

  • Alex Osberghaus

    (University of Zurich - Department Finance; Swiss Finance Institute)

  • Glenn Schepens

    (European Central Bank (ECB))

Abstract

Banks can grant loans to firms bilaterally or in syndicates. We study this choice by combining bilateral loan data with syndicated loan data. We show that loan size alone does not adequately explain syndication. Instead, banks' ability to manage risks and firm riskiness drive the choice to syndicate. Banks are more likely to syndicate loans if their risk-bearing capacity is low and if screening and monitoring come at a high cost. Syndicated loans are more expensive and more sensitive to loan risk than bilateral loans. Our findings contradict the hypothesis that reputable borrowers graduate to the syndicated loan market.

Suggested Citation

  • Steven Ongena & Alex Osberghaus & Glenn Schepens, 2024. "Joining Forces: Why Banks Syndicate Credit," Swiss Finance Institute Research Paper Series 24-80, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2480
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    More about this item

    Keywords

    syndicated loans; bank loans; credit market; funding structure; bank choice;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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