Risk Taking and Low Longer-Term Interest Rates: Evidence from the U.S. Syndicated Term Loan Market

68 Pages Posted: 28 Mar 2019

See all articles by Sirio Aramonte

Sirio Aramonte

Bank for International Settlements (BIS)

Seung Jung Lee

Board of Governors of the Federal Reserve System

Viktors Stebunovs

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: January 16, 2019

Abstract

We use supervisory data to investigate the ex-ante credit risk taken by different types of lenders in the U.S. syndicated term loan market during the LSAPs period. We fi nd that nonbank lenders, mutual funds and structured-fi nance vehicles, take higher risk when longer-term interest rates decrease. The results are stronger for mutual funds that charge higher fees. Banks accommodate other lenders' investment choices by originating riskier loans and selling them off. These results are consistent with "search for yield" by nonbanks and with a risk-taking channel of monetary policy. Over the sample we study, lower longer-term interest rates appear to have only a minimal effect on loan spreads.

Keywords: Syndicated Term Loans; Shared National Credit Program; Shadow Banking; Zero Lower Bound; Search for Yield; Risk-Taking Channel of Monetary Policy

JEL Classification: E43; E44; E52; E58; G11; G20

Suggested Citation

Aramonte, Sirio and Lee, Seung Jung and Stebunovs, Viktors, Risk Taking and Low Longer-Term Interest Rates: Evidence from the U.S. Syndicated Term Loan Market (January 16, 2019). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3347222

Sirio Aramonte (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Seung Jung Lee

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
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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