Loan Sales and Bank Liquidity Management: Evidence from a U.S. Credit Register

Rustom M. Irani; Ralf R. Meisenzahl

doi:10.1093/rfs/hhx024

Loan Sales and Bank Liquidity Management: Evidence from a U.S. Credit Register

Rustom M. Irani¹; Ralf R. Meisenzahl²

¹ College of Business, University of Illinois at Urbana-Champaign · ² Board of Governors of the Federal Reserve System ,

Review of Financial Studies 2017

We examine how banks use loan sales to manage liquidity during periods of marketwide stress and the associated spillovers to market prices. We track the dynamics of loan share ownership in the secondary market using data from a U.S. supervisory register of syndicated loans. Controlling for loan quality using loan-year fixed effects, we find that banks reliant on wholesale funding were more likely to exit syndicates through sales during 2007/08. This effect is stronger for banks dependent on short-term funding and holding fewer liquid securities. In addition, secondary market prices decrease significantly more for loans funded by liquidity-strained banks. Received November 16, 2015; editorial decision January 9, 2017 by Editor Itay Goldstein.

DOI: 10.1093/rfs/hhx024
Volume: 30 (10)
Pages: 3455-3501
Language: en
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