36 Pages Posted: 2 Dec 2015 Last revised: 12 Feb 2016
Date Written: January 8, 2016
This paper empirically explores the monitoring behavior of banks. We are able to infer bank monitoring activity by observing changes in internally-generated risk metrics for corporate credits. We use these measures of monitoring activity to better understand the bank monitoring motives and abilities. We find banks more closely monitor those credits to which they are most exposed. In contrast, we do not detect that syndicate agents monitor more than other banks. Banks with a larger share of a loan appear to passively monitor public credits more closely, but there is little evidence of proactive monitoring by banks with large syndicate shares. Banks risk estimates predict equity returns and ratings changes, consistent with a 'special' role for banks as claimants with proprietary information.
Keywords: banks, monitoring, syndicated loans
JEL Classification: G20
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