Liquidity Risk and Syndicate Structure
Simon Fraser University
Philip E. Strahan
Boston College - Department of Finance; National Bureau of Economic Research (NBER)
August 20, 2008
AFA 2009 San Francisco Meetings Paper
21st Australasian Finance and Banking Conference 2008 Paper
We produce a comprehensive decomposition of syndicated loan risk into credit, market and liquidity risk and test how these shape loan syndicate structure. Banks dominate relative to onbank investors in loan syndicates that expose lenders to liquidity risk. This dominance is most pronounced when borrowers have high levels of credit or market risk. We then tie banks' comparative advantage in liquidity risk bearing to their access to transactions deposits by comparing investments across banks. The results suggest that risk-management considerations matter most for participants relative to lead arrangers. Links from transactions deposits to liquidity exposure, for instance, are more than 50% larger at participants than at lead arrangers.
Number of Pages in PDF File: 47
Keywords: Liquidity Risk, Banks, Syndicates, Syndicated Loans
JEL Classification: G21, G20, G2working papers series
Date posted: March 25, 2008
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