Faculty of Economics and Business Administration Publications Database

Foreign banks in syndicated loan markets

Wachtel, Paul
Volume: 35
Number: 10
Pages: 2679 - 2689
Month: October
ISSN-Print: 0378-4266
Link External Source: Online Version
Year: 2011
Keywords: Foreign banks; Syndicated lending; Small financial systems

Foreign banks play a prominent role in syndicated loan markets. In this paper we examine foreign banks’ motives in participating in cross-border deals in 25 European countries. We find that usual explanations of foreign banking activities can only account partly for the high rate of foreign involvement in syndicated loan markets. The usual argument is that foreign banks are at a disadvantage because they lack soft information and thus they tend to lend to more transparent firms compared to their domestic counterparts. We find that this relationship only holds in relatively small financial systems. We illustrate different motivations for the large amount of cross border lending in large developed markets. In these markets foreign banks tend to lend to especially risky borrowers and projects.