Research-based policy commentary and analysis from leading economists
From credit risk to pipeline risk: Why loan syndication is a high-risk company
Max Bruche, Frederic Malherbe, Ralf R Meisenzahl 11 2017 september
Syndicated loan issuance is continuing to grow dramatically throughout the last 25 years. On the duration, the syndicated loan business structure has evolved, impacting the type of this associated dangers that organizing banking institutions are subjected to. This line presents the idea of ‘pipeline’ risk –the risk linked with marketing the loans throughout the syndication procedure. Pipeline risk forces organizing banking institutions to keep much bigger stocks of really dangerous syndicated term loans, which results in reduced financing by the arranging bank maybe not just in the syndicated term loan market, however in other people also.
Syndicated loan issuance – by which banks partner along with other institutions that are financial originate big loans – has grown considerably throughout the last 25 years. In 2016, non-financial corporations borrowed $3.4 trillion globally through the syndicated loan market, 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 financing happens to be driven by fundamental alterations in the term loan market that is syndicated. During the early 1990s, a bank that arranged a syndicated loan partnered along with other banking institutions to make the expression loan syndicate, plus the organizing banks kept an amazing share for the loan (20–30%) on its books. Because of the increase of this originate-to-distribute-to-nonbanks model in addition to market that is secondary syndicated loans, institutional investors such as for instance mutual funds and collateralised loan responsibilities began to offer extra capital for the syndicated term loan market (Bord and Santos 2012). متابعة قراءة “Syndicated loan issuance has exploded considerably during the last 25 years.”