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

Posted: 9 Jul 2021

See all articles by Sirio Aramonte

Sirio Aramonte

affiliation not provided to SSRN

Seung Jung Lee

affiliation not provided to SSRN

Viktors Stebunovs

Board of Governors of the Federal Reserve System

Date Written: July, 2015

Abstract

We use supervisory data to investigate risk taking in the U.S. syndicated loan market at a time when longer-term interest rates are exceptionally low, and we study the ex-ante credit risk of loans acquired by different types of lenders, including banks and shadow banks. We find that insurance companies, pension funds, and, in particular, structured-finance vehicles take higher credit risk when investors expect interest rates to remain low. Banks originate riskier loans that they tend to divest shortly after origination, thus appearing to accommodate other lenders' investment choices. These results are consistent with a \"search for yield\" by certain types of shadow banks and, to the extent that Federal Reserve policies affected longer-term rates, the results are also consistent with the presence of a risk-taking channel of monetary policy. Finally, we find that longer-term interest rates have only a modest effect on loan spreads.

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 Loan Market (July, 2015). FEDS Working Paper No. 2015-68, Available at SSRN: https://ssrn.com/abstract=3877002 or http://dx.doi.org/10.17016/FEDS.2015.068

Sirio Aramonte (Contact Author)

affiliation not provided to SSRN

No Address Available

Seung Jung Lee

affiliation not provided to SSRN

No Address Available

Viktors Stebunovs

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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