Global Banks and Syndicated Loan Spreads: Evidence from U.S. Banks

Abstract

This paper explores the relationship between bank global exposure and their syndicated loan spreads. Linking syndicated loan information from Dealscan with confidential US bank foreign exposure data and borrower characteristics, we find that more bank global exposure is associated with a higher loan spread that is statistically significant. To analyze this relationship between global banks and loan spreads, we develop a theoretical framework where, in equilibrium, riskier borrowers are more likely to work with global banks. Using a Heckman selection model, we confirm that borrower risk characteristics indeed predict a higher likelihood of having a loan arranged by a global bank. However, after controlling for the bank-borrower selection effect, we continue to find that global banks charge on average an 12.7 bps higher spread on their syndicated loans, as compared with domestically focused banks. Finally, we explore a non-risk based alternative where firms with multinational operations are more likely to work with global banks for international banking services.