Regulation Shaping Syndication: Evidence from Cross-Country Differences in Capital Regulation

56 Pages Posted: 1 Feb 2018 Last revised: 2 Jun 2019

See all articles by Janet Gao

Janet Gao

Indiana University - Kelley School of Business

Yeejin Jang

UNSW Australia Business School, School of Banking and Finance

Date Written: December 20, 2018

Abstract

We examine how cross-country differences in capital regulations shape the structure of global lending syndicates. Using globally syndicated loans extended by banks from 44 countries, we find evidence consistent with a regulatory arbitrage incentive of participant banks. Strictly regulated banks participate more in syndicates originated by lead lenders facing less stringent capital regulations. By joining less-regulated lead lenders, strictly regulated banks can invest in riskier loans and earn higher spreads. The regulatory arbitrage incentive of syndicated lending facilitates the access to credit by risky borrowers. Yet, it also exposes both participant banks and lead arrangers to greater systemic risk.

Keywords: Syndicated Loans, Cross-Border Banking, Banking Regulation, Capital Requirement, Regulatory Arbitrage

JEL Classification: G21, G30

Suggested Citation

Gao, Janet and Jang, Yeejin, Regulation Shaping Syndication: Evidence from Cross-Country Differences in Capital Regulation (December 20, 2018). Kelley School of Business Research Paper No. 18-35. Available at SSRN: https://ssrn.com/abstract=3108792 or http://dx.doi.org/10.2139/ssrn.3108792

Janet Gao (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Yeejin Jang

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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