Loan Sales and Bank Liquidity Risk Management: Evidence from the Shared National Credit Program
Rustom M. Irani
University of Illinois at Urbana-Champaign - Department of Finance
Ralf R. Meisenzahl
Federal Reserve Board
University of Illinois at Urbana-Champaign - College of Business
July 24, 2014
We investigate the impact of commercial banks' liquidity risk management on bank loan sales. We track the dynamics of bank loan share ownership in the secondary market using data from the Shared National Credit Program, a credit register of syndicated bank loans administered by U.S. regulators. We examine the 2007-2009 financial crisis as a market-wide liquidity shock and control for loan demand using a loan fixed effects approach. We find that banks with a greater reliance on wholesale funding at the onset of the crisis were more likely to exit loan syndicates during the crisis. Our analysis identifies the importance of bank liquidity risk management as a motivation for loan sales, in addition to the credit risk transfer motive emphasized in prior literature.
Number of Pages in PDF File: 64
Keywords: Loan Sales; Bank Risk Management; Funding Risk; Financial Crisis
JEL Classification: G01; G21; G23working papers series
Date posted: August 7, 2014
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