Syndicated loan pricing differences between investment banks and commercial banks

What is it about?

We find that compared to commercial banks, investment banks lend to less profitable, higher leverage, price riskier classes of term loans more generously, and offer relatively longer-term credits, usually with term, not commitment contracts. Investment banks typically establish higher credit spreads, although the premium declines when a commercial bank joins as syndicate co-arranger. Investment banks also price riskier classes of term loans more generously to borrowers than do commercial banks. Commercial-bank funding advantages do not appear to be a source of the pricing differences.

Featured Image

Why is it important?

The deregulation allows commercial banks to own investments banks and vice versa. This study indicates that there is a potential risk transfer from the investment banks side to the commercial banking side.