Transcript Ivashina-Scharfstein

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Syndicated Lending
• Bank loans in which a lead bank “originates” a loan and
lines up other financial institutions to share a portion of the
loans.
– Borrowers are large.
• Syndicate includes other non-bank financial institutions –
investment banks like Goldman Sachs and finance
companies such as GE capital – as well as institutional
investors like CLOs, hedge funds, mutual funds, insurance
companies, and pension funds.
• Syndicated loan market is part of “shadow banking system”
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To Separate Supply and Demand
• Look at relationship between lending and
reliance on short-term debt (rather than insured
deposits).
– If banks with greater reliance on short-term debt cut
lending more, that would be evidence of decline in a
loan supply.
• Look at relationship between lending and
vulnerability to credit-line drawdowns.
– If banks with more vulnerability to credit-line
drawdowns cut lending more, that would be evidence
of a decline in loan supply.
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Evidence
• A bank with the median deposits-to-assets ratio reduced its
monthly number of loan originations by 36% between
August and December 2008.
• A bank with a deposits-to-assets ratio one standard
deviation below the mean (i.e., greater reliance on shortterm debt than the mean) reduced loan originations by
49%.
• A bank with a deposits-to-assets ratio one standard
deviation above the mean (i.e., less reliance on short-term
debt than the mean) reduced loan originations by 21%.
Evidence of Decline in Loan Supply
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Link Between
Unexpected Drawdowns and Loans
• Focus on banks that co-syndicated revolvers
with Lehman (other banks would have to pick
up slack).
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Evidence
• Banks that co-syndicated a larger fraction of
their revolving credit lines with Lehman
reduced their lending more.
– Banks with a one standard deviation higher
exposure to Lehman (than point estimate in table
6) experienced a 44% drop in lending.
– Banks with a one standard deviation lower
exposure to Lehman (than point estimate in table
6) experienced a 25% drop in lending.
Evidence of Decline in Loan Supply
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