Bank Specialness, Credit Lines, and Loan Structure

54 Pages Posted: 26 Nov 2018 Last revised: 14 Jan 2020

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Donghang Zhang

University of South Carolina

Yijia (Eddie) Zhao

University of Massachusetts Boston - College of Management

Date Written: January 13, 2020

Abstract

We find that credit lines (CLs) play special roles in syndicated lending, committing lead banks to screen, monitor, and invest in relationships with borrowers. Institutional term loans (ITLs) packaged with CLs have lower interest rate spreads in the primary market and narrower bid-ask spreads in the secondary market. Findings support the Bank Specialness Hypothesis that banks significantly alleviate information problems in the syndicated loan market. Additional tests using the Lehman bankruptcy as a quasi-natural experiment confirm our conclusions. Our tests extend the literature on bank specialness, the value of CLs, and optimal loan contracting. Our findings also have policy implications.

Keywords: Credit Lines, Institutional Term Loans, Syndicated Lending, Bank Specialness

JEL Classification: G21, G23, G32

Suggested Citation

Berger, Allen N. and Zhang, Donghang and Zhao, Yijia, Bank Specialness, Credit Lines, and Loan Structure (January 13, 2020). Available at SSRN: https://ssrn.com/abstract=3276666 or http://dx.doi.org/10.2139/ssrn.3276666

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Donghang Zhang

University of South Carolina ( email )

1014 Greene Street
Darla Moore Sch
Columbia, SC SC 29208
United States
8037770242 (Phone)
29208 (Fax)

HOME PAGE: http://https://sc.edu/study/colleges_schools/moore/directory/zhang_donghang.php

Yijia Zhao (Contact Author)

University of Massachusetts Boston - College of Management ( email )

100 Morrissey Blvd.
Boston, MA 02125
United States

HOME PAGE: http://sites.google.com/view/eddie-zhao/home

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