IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/14164.html
   My bibliography  Save this paper

The strategic behavior of banks during a financial crisis; evidence from the syndicated loan market

Author

Listed:
  • de Haas, Ralph
  • van Horen, Neeltje

Abstract

We examine the strategic reaction of banks to the current global financial crisis. In particular, we test whether banks predominantly react by diversifying their loan portfolio or by stepping up their screening and monitoring. To this end we analyze information on nearly 17,000 syndicated loans that were granted to private borrowers in 60 countries over the period 2005-2008. We exploit the variation in lender and borrower characteristics to examine whether banks’ risk-mitigating strategies differ across borrower types. Our results show that during a financial crisis arranging banks retain larger portions of loans and form more concentrated syndicates, reflecting an increased need to screen and monitor borrowers. During a crisis, agency problems are attenuated in syndicates that lend to repeat borrowers and that are composed by experienced arrangers.

Suggested Citation

  • de Haas, Ralph & van Horen, Neeltje, 2009. "The strategic behavior of banks during a financial crisis; evidence from the syndicated loan market," MPRA Paper 14164, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:14164
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/14164/1/MPRA_paper_14164.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/14657/1/MPRA_paper_14657.pdf
    File Function: revised version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/15015/1/MPRA_paper_15015.pdf
    File Function: revised version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/16382/2/MPRA_paper_16382.pdf
    File Function: revised version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/17981/1/MPRA_paper_17981.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. de Haas, Ralph & van Lelyveld, Iman, 2010. "Internal capital markets and lending by multinational bank subsidiaries," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 1-25, January.
    2. Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 663-691.
    3. Steven Ongena, 1999. "Lending Relationships, Bank Default and Economic Activity," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 257-280.
    4. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
    5. Amir Sufi, 2007. "Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans," Journal of Finance, American Finance Association, vol. 62(2), pages 629-668, April.
    6. Raghuram G. Rajan, 1994. "Why Bank Credit Policies Fluctuate: A Theory and Some Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 399-441.
    7. Jonathan D. Jones & William W. Lang & Peter J. Nigro, 2005. "Agent Bank Behavior In Bank Loan Syndications," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(3), pages 385-402, September.
    8. Viral V. Acharya & Iftekhar Hasan & Anthony Saunders, 2006. "Should Banks Be Diversified? Evidence from Individual Bank Loan Portfolios," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1355-1412, May.
    9. Chowdhry, Bhagwan, 1991. "What Is Different about International Lending?," The Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 121-148.
    10. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    11. Berger, Allen N. & Udell, Gregory F., 2004. "The institutional memory hypothesis and the procyclicality of bank lending behavior," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 458-495, October.
    12. Allen, Franklin, 1990. "The market for information and the origin of financial intermediation," Journal of Financial Intermediation, Elsevier, vol. 1(1), pages 3-30, March.
    13. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-452, March.
    14. Rajan, Raghuram G, 1992. "Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-1400, September.
    15. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
    16. Dennis, Steven A. & Mullineaux, Donald J., 2000. "Syndicated Loans," Journal of Financial Intermediation, Elsevier, vol. 9(4), pages 404-426, October.
    17. Luciana Barbosa, 2007. "Determinants of Spreads in Syndicated Loans to Euro Area Corporates," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    18. Esty, Benjamin C. & Megginson, William L., 2003. "Creditor Rights, Enforcement, and Debt Ownership Structure: Evidence from the Global Syndicated Loan Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 37-60, March.
    19. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February.
    20. Katerina Simons, 1993. "Why do banks syndicate loans?," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 45-52.
    21. Oliver D. Hart & Dwight M. Jaffee, 1974. "On the Application of Portfolio Theory to Depository Financial Intermediaries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(1), pages 129-147.
    22. de Haas, Ralph & van Lelyveld, Iman, 2010. "Internal capital markets and lending by multinational bank subsidiaries," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 1-25, January.
    23. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    24. Christophe J. GODLEWSKI, 2008. "What Drives the Arrangement Timetable of Bank Loan Syndication ?," Working Papers of LaRGE Research Center 2008-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Swamy, Vighneswara & S, Sreejesh, 2012. "Financial Instability, Uncertainty and Banks’ Lending Behaviour," MPRA Paper 47518, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jian Cai, 2009. "Competition or collaboration? The reciprocity effect in loan syndication," Working Papers (Old Series) 0909, Federal Reserve Bank of Cleveland.
    2. Carletti, Elena & Cerasi, Vittoria & Daltung, Sonja, 2007. "Multiple-bank lending: Diversification and free-riding in monitoring," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 425-451, July.
    3. Bosch, Oliver & Steffen, Sascha, 2011. "On syndicate composition, corporate structure and the certification effect of credit ratings," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 290-299, February.
    4. Adamuz, María de las Mercedes & Hernández Cortés, Janko, 2015. "Endogenous screening and the formation of loan syndicates," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 290-307.
    5. Régis Breton, 2003. "A Smoke Screen Theory of Financial Intermediation," Post-Print halshs-00257188, HAL.
    6. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    7. Howcroft, Barry & Kara, Alper & Marques-Ibanez, David, 2014. "Determinants of syndicated lending in European banks and the impact of the financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 473-490.
    8. Kleimeier, Stefanie & Chaudhry, Sajid M., 2015. "Cultural differences and the structure of loan syndicates," Finance Research Letters, Elsevier, vol. 15(C), pages 115-124.
    9. Paravisini, Daniel & Rappoport, Veronica & Schnabl, Philipp, 2023. "Specialization in bank lending: evidence from exporting firms," LSE Research Online Documents on Economics 119458, London School of Economics and Political Science, LSE Library.
    10. Chandera, Yane & Setia-Atmaja, Lukas & Utama, Cynthia Afriani & Husodo, Zaäfri Ananto, 2021. "Ownership dispersion across large shareholders and loan-syndicate structure," Research in International Business and Finance, Elsevier, vol. 55(C).
    11. Yener Altunbas & Alper Kara & David Marques-Ibanez, 2010. "Large debt financing: syndicated loans versus corporate bonds," The European Journal of Finance, Taylor & Francis Journals, vol. 16(5), pages 437-458.
    12. Ryan Ball & Robert M. Bushman & Florin P. Vasvari, 2008. "The Debt‐Contracting Value of Accounting Information and Loan Syndicate Structure," Journal of Accounting Research, Wiley Blackwell, vol. 46(2), pages 247-287, May.
    13. Blaise Gadanecz & Alper Kara & Philip Molyneux, 2011. "The value of repeat lending," BIS Working Papers 350, Bank for International Settlements.
    14. Robert M. Bushman & Christopher D. Williams & Regina Wittenberg‐Moerman, 2017. "The Informational Role of the Media in Private Lending," Journal of Accounting Research, Wiley Blackwell, vol. 55(1), pages 115-152, March.
    15. Focarelli, Dario & Pozzolo, Alberto Franco & Casolaro, Luca, 2008. "The pricing effect of certification on syndicated loans," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 335-349, March.
    16. Chaudhry, Sajid M. & Kleimeier, Stefanie, 2015. "Lead arranger reputation and the structure of loan syndicates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 38(C), pages 116-126.
    17. Li, Yutao & Saunders, Anthony & Shao, Pei, 2015. "Did Regulation Fair Disclosure affect credit markets?," Journal of Banking & Finance, Elsevier, vol. 54(C), pages 46-59.
    18. Christodoulakis, George A. & Olupeka, Taiwo, 2010. "Pricing and momentum of syndicated credit in Europe," Omega, Elsevier, vol. 38(5), pages 325-332, October.
    19. Veronica Rappoport & Philipp Schnabl & Daniel Paravisini, 2015. "Comparative Advantage and Specialization in Bank Lending," 2015 Meeting Papers 499, Society for Economic Dynamics.
    20. Champagne, Claudia & Coggins, Frank, 2012. "Common information asymmetry factors in syndicated loan structures," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1437-1451.

    More about this item

    Keywords

    bank lending; financial crisis; asymmetric information; syndication;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:14164. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.