Why do banks syndicated loans simons

Second, syndication allows banks that are constrained by their capital-asset ratios to participate in loans to larger borrowers. This study uses data on loan syndications to test the importance of various factors that motivate the participants. Despite a significant number of problem credits among the syndicated loans studied, it finds little evidence of opportunistic behavior by the lead banks in syndications. At the same time, it finds substantial support for the importance of bank regulation, in the form of capital requirements and lending limits, to the existence of the bank syndication market.

The Loan Market Association LMA has issued guidance on how institutions can enter into syndicates whilst complying with competition law. The general guiding principle of the guidance is that, whenever practicable, lenders should seek the prior consent of the borrower to any proposed contact with competitors within the lending group. Once obtained, lenders should be careful to act only within the terms of this consent. Although there are potential competition risks arising from loan syndication, its purpose is pro-competitive.

This is because syndication allows banks to take on a portion of the total loan amount sought, where the overall amount would otherwise be too significant to be offered by one bank alone. Syndication is therefore especially important for smaller banks, which may not have access to the requisite pools of capital to meet larger loan requests on their own. Indeed, in the UK, the FCA confirmed through its February newsletter that it has sent several firms "on notice" letters of potential competition law infringements arising from disclosures or exchanges of competitively sensitive information that relate to the terms and conditions of syndicated lending.

If the Commission does indeed go ahead with its proposed study, it is therefore likely to probe the loan syndication process more closely than any competition authority has in the past.

In the meantime, syndicate lenders should ensure that processes are competition law compliant as well as following common sense guidance and the approach espoused by the LMA. Adopting a "borrower first" approach means that the lender is less likely to commit a breach of competition law, even inadvertently.

Sign up to get the latest legal know-how delivered straight to your inbox. This document and any information accessed through links in this document is provided for information purposes only and does not constitute legal advice. CEO entrenchment and loan syndication. Unlike a traditional bank loan with only a single creditor, a syndicated loan involves a group of lenders: a lead arranger and a number of participant lenders.

The syndication process, therefore, … Expand. Determinants of syndicated lending in European banks and the impact of the financial crisis. Syndicated lending is a widely practiced alternative to traditional bilateral lending and within Europe the syndicated loan market increased significantly during the s. Using a dataset consisting … Expand.

View 10 excerpts, cites background and results. This paper studies the structure of syndicated loans and analyzes the participation of investment banks in syndicated loans.

We find that investment banks are more likely to lead syndicated loans to … Expand. Because the lead bank is the principal syndicate member collecting information … Expand. View 1 excerpt, cites background. This paper empirically explores the syndicated loan market … Expand. In this paper, we assess the relative importance of ratings versus stock exchange listings at reducing information asymmetry using a dataset of syndicated loans to public and private firms in the … Expand.

View 3 excerpts, cites background.