Lone (Loan) Wolf Pack Risk

86 Pages Posted: 17 Mar 2023

See all articles by Mingze Gao

Mingze Gao

Macquarie University, Macquarie Business School

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Buhui Qiu

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Eliza Wu

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

Multiple version iconThere are 2 versions of this paper

Date Written: March 17, 2023

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 (March 17, 2023). Bank of Finland Research Discussion Paper No. 4/2023, Available at SSRN: https://ssrn.com/abstract=4391791 or http://dx.doi.org/10.2139/ssrn.4391791

Mingze Gao (Contact Author)

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

HOME PAGE: http://mingze-gao.com

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

The University of Sydney - Discipline of Finance ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
Australia

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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