Lone (Loan) Wolf Pack Risk

83 Pages Posted: 23 Jan 2023

See all articles by Mingze Gao

Mingze Gao

University of Sydney Business School

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Date Written: December 2022

Abstract

This paper proposes an early-warning bank risk measure based on the syndicate concentration of recent syndicated loans that a bank participates in. At the bank level, higher values of the measure predict greater risks (i.e., loan loss provisions, idiosyncratic return volatility, default probability, and frequency of lawsuits) and lower profitability at least three years ahead, especially for opaque and complex banks. Banks failing the Federal Reserve’s forward-looking stress tests subsequently exhibit a reduction in the syndicate concentration measure. At the aggregate level, higher values of the measure predict both greater financial sector risks and economic slowdowns measured by private-sector investment, business activity, total factor productivity, industrial production, and gross domestic product.

Keywords: syndicate concentration, early-warning, bank risks, financial sector risks, economic slowdowns

JEL Classification: G21, E02

Suggested Citation

Gao, Mingze and Hasan, Iftekhar and Qiu, Buhui and Wu, Eliza, Lone (Loan) Wolf Pack Risk (December 2022). Available at SSRN: https://ssrn.com/abstract=4331418 or http://dx.doi.org/10.2139/ssrn.4331418

Mingze Gao (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Buhui Qiu

University of Sydney Business School ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9036 6435 (Phone)
+61 2 9351 6461 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/buhuiq

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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