Frederik Eidam

Publications


Abstract:

Syndication increases the overlap of bank loan portfolios and makes them more vulnerable to contagious effects. We develop a novel measure of bank interconnectedness using syndicated corporate loan portfolios, overlap based on industry and region, and different weights such as equal weights, size and relationships. We find that interconnectedness is driven mainly by bank diversification, less by bank size or overall loan market size. Interconnectedness is positively correlated with different bank-level systemic risk measures including SRISK, DIP and CoVaR, and such a positive correlation mainly arises from an elevated effect of interconnectedness on systemic risk during recessions. Overall, our results highlight that institution-level risk reduction through diversification ignores the negative externalities of an interconnected financial system.

Online Appendix, and Working Paper at SSRN

On the program of AFA/AEA 2016


Working papers


Abstract:

Do governments strategically choose debt maturity to fill supply gaps across maturities? Building on a new panel data set of more than 9,000 individual Eurozone government debt issues between 1999 and 2015, I find that governments increase long-term debt issues following periods of low aggregate Eurozone long-term debt issuance, and vice versa. This gap-filling behavior is more pronounced for (1) less financially constrained and (2) higher rated governments. Using the ECB's three-year LTRO in 2011-2012 as an event study, I find that core governments filled the supply gap of longer maturity debt, which resulted from peripheral governments accommodating banks' short-term debt demand for "carry trades". This gap-filling implies that governments act as macro-liquidity providers across maturities, thereby adding significant risk absorption capacity to government bond markets.


Abstract:

How does the organizational form of loan syndicates evolve and what are the effects on price collusion? We develop a novel measure of distance in lending expertise among syndicate lenders, and relate this novel measure to the organizational form of loan syndicates and loan pricing. Studying the U.S. syndicated loan market from 1989 to 2017, we find that the organizational form of loan syndicates significantly varies across our lender measure based on similar specializations in lending which we call syndicated distance. Large lead arrangers prefer to form close and concentrated syndicates by letting lenders with similar lending expertise into their syndicates and allocating those lenders higher loan shares. Analyzing loan pricing, we find that concentrated syndicates possess improved screening abilities, but collude on loan pricing. Consistent with Hatfield et al. (2017), we find however that price collusion of concentrated syndicates only occurs during periods of low market concentration. Our findings imply that both the organizational form of loan syndicates and the level of market concentration affect price collusion.

On the program of the AFA 2019, SFS Cavalcate NA 2019


Abstract:

In this paper, we study the organizational form of loan syndicates, how banks choose their syndicate partners and how this affects syndicate structure, loan pricing, and borrower performance. We develop a set of novel measures in terms of the distance in lending expertise with respect to both borrower industry and borrower geographic location between any two lenders and relate these measures to the organizational form of loan syndicates. We find that lead arrangers choose banks that have a similar focus in terms of lending expertise, i.e., close competitors, and give these banks more senior roles in the syndicate. We also find that these more senior syndicate members hold larger loan shares. Borrowers, especially those presenting more severe information asymmetry, benefit from such an organizational design by paying lower interest spreads. These results support the hypothesis that syndicate members that are close to lead arrangers are delegated some responsibilities such as screening and monitoring and thus can lower the overall loan syndication costs. We do not find, however, significant evidence of more effective ex-post monitoring from such a strategy based on loan default when ex-ante borrower quality and creditworthiness is taken into account. This implies that banks collaborate to pool on screening rather than monitoring.

On the program of the Arne Ryde Conference on Financial Intermediation 2017