Abstract
We investigate the connections between bank capital regulation and the prevalence of lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For identification, we exploit a supervisory credit register of syndicated loans, loan-time fixed-effects, and shocks to capital requirements arising from surprise features of the U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention and nonbanks step in, particularly among loans with higher capital requirements and at times when capital is scarce. This reallocation has important spillovers: loans funded by nonbanks with fragile liabilities experience greater sales and price volatility during the 2008 crisis.
Highlights
We track these loans over time to construct two loan-level measures of credit availability that are complementary in the sense that they capture adjustments along the intensive and extensive margins
As shown in columns [3] to [5], we find similar effects for small and big sales, the largest loan sales do not appear to respond to bank capital
We find similar effects for both publicly traded and privately held banks, suggesting that access to public equity does not ameliorate the effect of capital constraints on loan sales
Summary
SNC is a credit register of syndicated loans maintained by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance. The SNC data tracks loan share ownership over time and allows us to measure loan sales in the secondary market To this end, for each loan we compare syndicate membership from one year to the and code a loan share sale whenever a lender j reduces its exposure in year t +1 from year t. We exclude loan-years for which the credit identifier does not change, but we do observe some change in the maturity date, origination date, or total loan amount at origination, since such changes are associated with refinancing or amendment of an existing loan This “No Amend” sample allows us to address the identification concern that borrowers may remove underperforming banks from the syndicate, assuming it is easier to do so when the contract is up for renegotiation. These loan price proxies allow us to estimate the association between nonbank participation in loan syndicates and price declines during the 2008 aggregate shock
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