Recent Trends in Bank Loan Syndications: Evidence for 1995 to 1999

Bank loan syndications have become an increasingly popular and important way for commercial borrowers to satisfy their financing needs. The ability to overcome problems of adverse selection and moral hazard are critical to the development of this market. Using a panel data set constructed from the Shared National Credit Program over the period 1995 to 1999, this paper extends the work of Simons (1993) and Dennis and Mullineaux (2000) by estimating a multivariate cross-section/time-series regression model explaining an agent bank's retained share of a syndicated loan. The panel regression model focuses on the effect of information asymmetries, loan quality, and capital constraints on an agent bank's retained loan share. We also test for opportunistic behavior by agent banks. We find that bank capital, loan seasoning, and maturity have significant effects on the average loan share retained by an agent bank. More importantly, we find that, although agent banks retain larger portions of their lower-quality loans, certain agent banks specialize in the lower end of the credit spectrum, and these banks syndicate a larger share of their low-quality loans. 1 The Office of the Comptroller of the Currency and the Office of Thrift Supervision, as a matter of policy, disclaim any responsibility for any publication or statements by any of their employees. The views expressed herein are those of the authors and do not necessarily reflect the views of these agencies, or of the authors' colleagues on the staffs of the two agencies. The authors wish to thank Bob DeYoung, David Nebhut and Gary Whalen for valuable comments and Morey Rothberg for excellent editorial assistance.