Research-based policy analysis and commentary from leading economists
From credit risk to pipeline risk: Why loan syndication is a dangerous company
Max Bruche, Frederic Malherbe, Ralf R Meisenzahl 11 2017 september
Syndicated loan issuance has exploded significantly over the past 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 marketing the loans through the syndication procedure. Pipeline danger forces arranging banking institutions to put up bigger stocks of extremely dangerous syndicated term loans, which results in reduced lending by the arranging bank maybe not just when you look at the syndicated term loan market, however in other people also.
Syndicated loan issuance – in which banking institutions partner along with other finance institutions to originate big loans – has grown significantly throughout the last 25 years. In 2016, non-financial corporations borrowed $3.4 trillion all over the world through the loan that is syndicated, causeing this to be source of funding somewhat bigger than the issuance of bonds and equity (see Figure 1). A lot of the expansion in syndicated lending happens to be driven by fundamental alterations in the term loan market that is syndicated. Within the early 1990s, a bank that arranged a syndicated loan partnered along with other banks to create the expression loan syndicate, plus the organizing banks kept a considerable share associated with the loan (20–30%) on its publications. Utilizing the rise associated with originate-to-distribute-to-nonbanks model while the market that is secondary syndicated loans, institutional investors such as for instance shared funds and collateralised loan responsibilities began to offer extra money for the syndicated term loan market (Bord and Santos 2012). “Syndicated loan issuance has exploded considerably during the last 25 years.” okumaya devam et