Networks and Information in Credit Markets
49 Pages Posted: 3 Nov 2017 Last revised: 3 Mar 2023
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Networks and Information in Credit Markets
Credit Market Spillovers: Evidence from a Syndicated Loan Market Network
Date Written: May 19, 2017
Abstract
A large theoretical literature emphasizes financial networks, but empirical studies remain scarce. We exploit the overlapping bank portfolio structure of US syndicated loans to construct a financial network and characterize its evolution over time. Using techniques from spatial econometrics, we find large spillovers in lending conditions from peers' decisions during normal times: a standard deviation increase in peer lending rates can increase a bank's lending rate by 17 basis points. However, these spillovers vanish in a large recession. We rationalize these findings through the lens of a model of syndicate lending, where banks' reliance on private signals rises during recessions.
Keywords: Financial networks, spillovers, cost of lending, syndicated loan market
JEL Classification: G21, C31
Suggested Citation: Suggested Citation