Does Securitization Impair Bank Lending Relationship?

55 Pages Posted: 21 Feb 2017 Last revised: 6 Jun 2017

See all articles by Yupeng Lin

Yupeng Lin

National University of Singapore

Xin Liu

Research School of Finance, Actuarial Studies & Applied Statistics, CBE, Australian National University

Yihui Wang

Fordham University

Date Written: March 2017

Abstract

We study whether and how corporate loan securitization through collateralized loan obligations (CLOs) has changed the nature of bank lending relationship. We use a large dataset of CLO collaterals to identify securitized loans and the relationship lenders. We show that even if a relationship lender securitizes a past loan, it continues to gain future lending business from the same borrower. The new loans from this securitization-funded relationship lender, when compared to loans from a traditional relationship lender, have fewer covenants, smaller amount of revolvers at higher costs, and larger amount of institutional term loans at lower costs. In addition, the new loans from these lenders are also more likely to be securitized. Our results suggest that lending relationship is impaired as securitization weakens monitoring efforts and reduces the information advantage of relationship banks. Yet, these lenders seem to be able to keep their relationship borrowers with their access to structured credit markets. Overall, our findings indicate that benefits of securitization coexist with its costs in relationship lending.

Keywords: Securitization, CLOs, Lending Relationship

JEL Classification: G20, G32

Suggested Citation

Lin, Yupeng and Liu, Xin and Wang, Yihui, Does Securitization Impair Bank Lending Relationship? (March 2017). Available at SSRN: https://ssrn.com/abstract=2920174 or http://dx.doi.org/10.2139/ssrn.2920174

Yupeng Lin

National University of Singapore ( email )

15 Kent ridge drive
Singapore
Singapore

HOME PAGE: http://sites.google.com/site/scottlinyupeng/

Xin Liu

Research School of Finance, Actuarial Studies & Applied Statistics, CBE, Australian National University ( email )

Kingsley Street
acton, ACT 0200
Australia

Yihui Wang (Contact Author)

Fordham University ( email )

33 West 60th Street
New York, NY 10023
United States

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