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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31373
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| Title: | Syndication, Interconnectedness, and Systemic Risk |
| Authors: | Saunders, Anthony
Cai, Jian
Steffen, Sascha |
| Issue Date: | 14-Dec-2011 |
| Series/Report no.: | FIN-11-040 |
| Abstract: | This paper studies the interconnectedness of banks in the syndicated
loan market as a major source of systemic risk. We develop a set of
novel measures to describe the "distance" (similarity) between
two banks' syndicated loan portfolios and find that such distance
explains how banks are interconnected in this market. As lead arrangers
choose to work with those that have a similar focus in terms of lending
expertise, there is a high propensity of bank lenders to concentrate
syndicate partners rather than to diversify them. We find some evidence
of potential benefits of this behavior as to lower costs of screening
and monitoring, for example, higher shares of the loan taken by more
connected lenders and lower loan spreads if syndicated lenders are more
connected. Lastly, we find that the most heavily interconnected lenders
in the syndicated loan market are also the greatest contributors to
systemic risk, suggesting important negative externalities associated
with the syndication process. |
| URI: | http://hdl.handle.net/2451/31373 |
| Appears in Collections: | Finance Working Papers
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