Research-based policy analysis and commentary from leading economists
From credit risk to pipeline risk: Why loan syndication is just a high-risk company
Max Bruche, Frederic Malherbe, Ralf R Meisenzahl 11 September 2017
Syndicated loan issuance is continuing to grow considerably during the last 25 years. The syndicated loan business model has evolved, affecting the nature of the associated risks that arranging banks are exposed to over the period. This line presents the style of ‘pipeline’ risk –the risk linked with advertising the loans throughout the syndication procedure. Pipeline danger forces organizing banking institutions to keep much bigger stocks of really dangerous syndicated term loans, which results in reduced lending by the bank that is arranging just when you look at the syndicated term loan market, however in other people aswell.
Syndicated loan issuance – by which banking institutions partner along with other institutions that are financial originate large loans – has grown considerably over the past 25 years. In 2016, non-financial corporations borrowed $3.4 trillion internationally through the loan that is syndicated, causeing this to be source of funding considerably bigger than the issuance of bonds and equity (see Figure 1). (more…)