RELATION OF REGULATORY CAPITAL ON THE ORIGINATION OF INFORMATIONALLY OPAQUE SYNDICATED LOANS

Abstract

Using a dataset which covers over 200,000 loan-lender-borrower triplets in the US from 1993-2017, I study the relation of regulatory capital on syndicated loans origination to private companies. I find that syndicate leads with a one-percentage-point lower Tier 1 regulatory capital are 1.38% more likely to originate loans to private borrowers. Although not causally identified, my results are consistent with the risk shifting hypothesis. I observe that the relation becomes statistically significant only after the Glass-Steagall repeal, and persists after the Financial Crisis, before diminishing after the 2011 Collins Amendment. I also find no evidence for an increase in loans to transparent borrowers with poor credit ratings, consistent with the notion that the origination of informationally opaque loans could serve as an avenue for regulatory arbitrage.