Impact of Leveraged Lending Guidance: Evidence from Nonbank Participation in Syndicated Loans
Journal of Financial Regulation and Compliance, accepted April 2022
42 Pages Posted: 18 Nov 2021 Last revised: 29 Mar 2023
Date Written: April 15, 2021
Abstract
Using supervisory Shared National Credit (SNC) loan level quarterly reports from 2010 to 2015 and DealScan loan origination data, we examine the impact of the 2013 Leveraged Lending Guidance on risk and structure of syndicated loans arranged by the largest banks. We find that the impact of this Guidance was mixed. The incidence of leveraged lending declined immediately following the Guidance, as did risk, as reflected in lower nonbank syndicate participation. However, the covenant protections weakened and loan spreads at origination declined. We also provide evidence that some risky lending originations shifted to nonbank entities outside of the banking regulatory environment.
Keywords: Syndicated Loans; Leveraged Lending; Regulation; Banking.
JEL Classification: G21, G28
Suggested Citation: Suggested Citation