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December 2012 issue
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Roman Horváth, Kateřina Šmídková and Jan Zápal
Jens H.E. Christensen, Jose A. Lopez, and Glenn D. Rudebusch
Philip Liu and Konstantinos Theodoridis
Güneş Kamber and Stephen Millard
Yassine Bouhdaoui and David Bounie
Blaise Gadanecz, Kostas Tsatsaronis, and Yener Altunbaş
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Spoilt and Lazy: The Impact of State Support on Bank Behavior in the International Loan Market

by Blaise Gadanecza, Kostas Tsatsaronisa, and Yener Altunbaşb

Abstract

We analyze the syndicated loan market activity of banks with high support ratings. We find evidence that they underprice risk. Controlling for other characteristics, loans arranged by supported banks have, on average, lower spreads. In addition, these banks retain loans that are, on average, priced below market. At the same time, we do not find evidence suggesting that supported banks play any special role through strategic loan participation. Compared with other banks, their loan portfolios are less specialized, are more closely aligned with prevailing market trends, and exhibit lower persistence in their sectoral allocations.

JEL Codes: G15, G21.

 
Full article (PDF, 53 pages 1193 kb)


a Bank for International Settlements
b Bangor Business School, University of Wales