Who Lends Before Banking Crises? Evidence from the International Syndicated Loan Market
64 Pages Posted: 17 Dec 2020 Last revised: 1 Nov 2023
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Who Lends Before Banking Crises? Evidence from the International Syndicated Loan Market
Who Lends Before Banking Crises? Evidence from the International Syndicated Loan Market
Date Written: November 1, 2023
Abstract
Existing studies assume that all lenders have similar incentives to take on risks during different phases of the lending cycle. We show that foreign lenders and low-market-share lenders extend more credit in comparison to other lenders during lending booms leading to banking crises, but not during other credit expansions. These less established lenders also shorten loan maturity and increase the amount of credit they extend to riskier borrowers, without asking for collateral or imposing covenants and higher interest rates. Our results suggest that foreign lenders and low-market-share lenders contribute disproportionately to credit misallocation and risk accumulation in pre-crisis periods.
Keywords: Foreign banks, crises, credit booms, externalities
JEL Classification: G21, F3
Suggested Citation: Suggested Citation