Risk Taking and Interest Rates: Evidence from Decades in the Global Syndicated Loan Market
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Summary:
We study how low interest rates in the United States affect risk taking in the market of crossborder leveraged corporate loans. To the extent that actions of the Federal Reserve affect U.S. interest rates, our analysis provides evidence of a cross-border spillover effect of monetary policy. We find that before the crisis, lenders made ex-ante riskier loans to non- U.S. borrowers in response to a decline in short-term U.S. interest rates, and, after it, in response to a decline in longer-term U.S. interest rates. Economic uncertainty and risk appetite appear to play a limited role in explaining ex-ante credit risk. Our results highlight the potential policy challenges faced by central banks in affecting credit risk cycles in their own jurisdictions.
Series:
Working Paper No. 2017/016
Subject:
Credit risk Financial institutions Financial regulation and supervision Financial services Loans Market risk Short term interest rates Syndicated loans
English
Publication Date:
January 27, 2017
ISBN/ISSN:
9781475572377/1018-5941
Stock No:
WPIEA2017016
Pages:
47
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