Networks and Information in Credit Markets

49 Pages Posted: 3 Nov 2017 Last revised: 3 Mar 2023

See all articles by Abhimanyu Gupta

Abhimanyu Gupta

University of Essex - Department of Economics

Sotirios Kokas

University of Essex - Essex Business School

Alexander Michaelides

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Raoul Minetti

Michigan State University

Multiple version iconThere are 2 versions of this paper

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

Gupta, Abhimanyu and Kokas, Sotirios and Michaelides, Alexander and Minetti, Raoul, Networks and Information in Credit Markets (May 19, 2017). Available at SSRN: https://ssrn.com/abstract=3063886 or http://dx.doi.org/10.2139/ssrn.3063886

Abhimanyu Gupta

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Sotirios Kokas (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Alexander Michaelides

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Raoul Minetti

Michigan State University ( email )

Agriculture Hall
East Lansing, MI 48824-1122
United States

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