Risk Taking and Interest Rates: Evidence from Decades in the Global Syndicated Loan Market

By Seung Jung Lee, Lucy Qian Liu, Viktors Stebunovs

January 27, 2017

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Seung Jung Lee, Lucy Qian Liu, and Viktors Stebunovs. Risk Taking and Interest Rates: Evidence from Decades in the Global Syndicated Loan Market, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Credit risk, Financial institutions, Financial regulation and supervision, Financial services, Loans, Market risk, Short term interest rates, Syndicated loans

Keywords: Credit risk, EME borrower, Federal funds rate, Global, International spillovers, Loan spread, Loans, Market risk, Monetary policy, Risk taking, Short term interest rates, Syndicated loans, Term loan, U.S. dollar, WP

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/016
Stock No:

WPIEA2017016
ISBN:

9781475572377
ISSN:

1018-5941

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