Risk Taking and Interest Rates: Evidence from Decades in the Global Syndicated Loan Market

48 Pages Posted: 9 Mar 2017

See all articles by Seung Jung Lee

Seung Jung Lee

Board of Governors of the Federal Reserve System

Lucy Qian Liu

International Monetary Fund (IMF)

Viktors Stebunovs

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: January 2017

Abstract

We study how low interest rates in the United States affect risk taking in the market of cross-border leveraged corporate loans. To the extent that actions of the Federal Reserve affect U.S. interest rates, our analysis provides evidence of a cross-border spillover effect of monetary policy. We find that before the crisis, lenders made ex-ante riskier loans to non-U.S. borrowers in response to a decline in short-term U.S. interest rates, and, after it, in response to a decline in longer-term U.S. interest rates. Economic uncertainty and risk appetite appear to play a limited role in explaining ex-ante credit risk. Our results highlight the potential policy challenges faced by central banks in affecting credit risk cycles in their own jurisdictions.

Keywords: Interest rates on loans, Loans, Credit risk, United States, Monetary policy, Spillovers, Regression analysis, Syndicated loans, risk taking, monetary policy, international spillovers

JEL Classification: E44, E52, F30, F42, G15, G30

Suggested Citation

Lee, Seung Jung and Liu, Lucy Qian and Stebunovs, Viktors, Risk Taking and Interest Rates: Evidence from Decades in the Global Syndicated Loan Market (January 2017). IMF Working Paper No. 17/16, Available at SSRN: https://ssrn.com/abstract=2929415

Seung Jung Lee (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Lucy Qian Liu

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Viktors Stebunovs

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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