Bank Systemic Risk-Taking and Loan Pricing

Evidence from Syndicated Loans

D. Gong

Research output: Working paperDiscussion paperOther research output

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Abstract

In this paper we document evidence of systemic risk taking from syndicated loan
pricing. Using U.S. syndicated loan data, we find that the borrower's idiosyncratic risk is positively priced whereas systematic risk is negatively related to loan spreads, controlling for firm, loan and bank specific variables. We argue that the underpricing of systematic risk relative to idiosyncratic risk suggests banks' preference for investing in systematic risk which increases interbank correlation and systemic risk of banks. We relate the incentive for systemic risk-taking to the "too-many-to-fail" guarantee. We further show that small and lowly correlated banks underprice systematic risk relative to big and more correlated
banks.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages33
Volume2014-006
Publication statusPublished - 24 Aug 2014

Publication series

NameEBC Discussion Paper
Volume2014-006

Fingerprint

Loan pricing
Systematic risk
Systemic risk
Risk taking
Syndicated loans
Loans
Idiosyncratic risk
Investing
Incentives
Underpricing
Guarantee

Keywords

  • Systemic risk-taking;
  • loan pricing
  • public guarantees
  • too-many-to-fail
  • syndicated loans

Cite this

Gong, D. (2014). Bank Systemic Risk-Taking and Loan Pricing: Evidence from Syndicated Loans. (EBC Discussion Paper; Vol. 2014-006). Tilburg: EBC.
Gong, D. / Bank Systemic Risk-Taking and Loan Pricing : Evidence from Syndicated Loans. Tilburg : EBC, 2014. (EBC Discussion Paper).
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Gong, D 2014 'Bank Systemic Risk-Taking and Loan Pricing: Evidence from Syndicated Loans' EBC Discussion Paper, vol. 2014-006, EBC, Tilburg.

Bank Systemic Risk-Taking and Loan Pricing : Evidence from Syndicated Loans. / Gong, D.

Tilburg : EBC, 2014. (EBC Discussion Paper; Vol. 2014-006).

Research output: Working paperDiscussion paperOther research output

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Gong D. Bank Systemic Risk-Taking and Loan Pricing: Evidence from Syndicated Loans. Tilburg: EBC. 2014 Aug 24. (EBC Discussion Paper).