'What's the Use of Having a Reputation If You Can't Ruin It Every Now and Then?' Regulatory Enforcement Actions on Banks and the Structure of Loan Syndicates

71 Pages Posted: 26 Apr 2016 Last revised: 13 May 2018

See all articles by Manthos D. Delis

Manthos D. Delis

Montpellier Business School

Maria Iosifidi

University of Surrey - Surrey Business School

Sotirios Kokas

University of Glasgow - Adam Smith Business School

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Dimitrios Xefteris

University of Cyprus

Date Written: May 9, 2018

Abstract

Regulatory enforcement actions for non-compliance with laws and regulations may have adverse reputational effects for punished banks acting as lead arrangers in loan syndicates, thereby disincentivizing participants from co-financing and forcing the lead arrangers to increase their own shares of the loans. Our empirical evidence based on hand-collected enforcement action data enacted from 2001 through 2010 in the U.S. and on matched syndicated loan-level data strongly supports this conjecture. The required share increases by lead arrangers can be mitigated by extending loan guarantees, performance pricing provisions, and covenants.

Keywords: Syndicated Loan Market, Syndicate Structure, Reputation of Lead Arranger, Enforcement Actions, Incomplete and Asymmetric Information, Loan-Level Data

JEL Classification: D82, G21, G28

Suggested Citation

Delis, Manthos D. and Iosifidi, Maria and Kokas, Sotirios and Ongena, Steven R. G. and Xefteris, Dimitrios, 'What's the Use of Having a Reputation If You Can't Ruin It Every Now and Then?' Regulatory Enforcement Actions on Banks and the Structure of Loan Syndicates (May 9, 2018). Available at SSRN: https://ssrn.com/abstract=2769514 or http://dx.doi.org/10.2139/ssrn.2769514

Manthos D. Delis

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Maria Iosifidi

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 8DN
United Kingdom

Sotirios Kokas

University of Glasgow - Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom
0044141 330 4297 (Phone)

HOME PAGE: http://https://sites.google.com/site/sotirioskokas/home

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Dimitrios Xefteris

University of Cyprus ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus

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