Liquidity Advantage of Domestic Banks: Evidence from Australian Syndicated Loans

32 Pages Posted: 20 Aug 2012  

Christine A. Brown

Department of Banking and Finance; Financial Research Network (FIRN)

Viet Minh Do

Monash University - Department of Accounting; Financial Research Network (FIRN)

Oscar Trevarthen

affiliation not provided to SSRN

Date Written: August 20, 2012

Abstract

This paper explore whether there are competitive advantage of Australian domestic banks relative to international banks in absorbing liquidity risk originated from loan contract. We focus on the Australian syndicated loan market and the two types of syndicated loans: term loans and revolving loans. Term loans, entirely funded at origination, are credit risk intensive loans, whilst revolving loans are liquidity intensive as they can be drawn-down at any time by the borrower. We find evidence suggesting that Australian domestic banks are more willing to take liquidity risk. In particular, the proportion of loans held by Australian domestic banks significantly higher for revolving loans. Furthermore, such liquidity advantage amplifies for high risk borrower and when market condition deteriorates. There is also evidence suggesting that the higher level liquidity risk of Australian domestic banks is due to their risk seeking behavior.

Keywords: liquidity risk, syndicated loans, syndicated composition

JEL Classification: G21, G24

Suggested Citation

Brown, Christine A. and Do, Viet Minh and Trevarthen, Oscar, Liquidity Advantage of Domestic Banks: Evidence from Australian Syndicated Loans (August 20, 2012). 25th Australasian Finance and Banking Conference 2012. Available at SSRN: https://ssrn.com/abstract=2132252 or http://dx.doi.org/10.2139/ssrn.2132252

Christine A. Brown

Department of Banking and Finance ( email )

Building 11E
Clayton, Victoria 3800
Australia
+61 3 99031793 (Phone)
+61 3 99055475 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: www.firn.org.au

Viet Minh Do (Contact Author)

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Oscar Trevarthen

affiliation not provided to SSRN ( email )

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