Regulation Shaping Syndication: Evidence from Cross-Country Differences in Capital Regulation
56 Pages Posted: 1 Feb 2018 Last revised: 2 Jun 2019
Date Written: December 20, 2018
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
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