Our investigation into the entities investing in bank loans confirms that other banks were not quick to step in and take over as lead banks reduced their stake in the loans they originated.
In 1988, the first year of the sample period, lead banks retained in aggregate a stake of 17.
The market share of the credits that lead banks retain at origination has clearly fallen, but the representation of this decline in Chart 2 is skewed by the large number of credit lines in our sample.
However, in the first decade of the 2000s, while lead banks continued the trend of decreasing their market share of term loans, they reversed the trend for credit lines.
These trends, though suggestive of these effects, do not reflect the whole story, since they account only for the role of lead banks and exclude that of banks that participate in the loan syndicate (syndicate-participant banks).
The decline in the share of credits that lead banks originate did not occur only at the time of the credit origination but continued throughout the life of the credit.
First, in the years after credit-line origination, lead banks either did not sell off additional portions of the credit lines or sold off a very small (aggregate) share.
Second, as the term loans held by lead banks aged, the banks increasingly reduced their aggregate exposure to them.
Given our finding that over time lead banks are retaining a smaller and smaller portion of the credits they originate (especially in the case of term loans), a natural question to ask is, Who buys these credits?
We start by investigating whether, as the lead banks have lowered the share of credits they retain at origination, other banks have increased the share of credit they hold as syndicate participants.
As the chart shows, although the market share of credit lines retained by lead banks decreased through the 1990s and increased through the 2000s, the total market share held by all banks (both lead and syndicate-participant banks) remains fairly stable, at an average of 92 percent during the pre-crisis sample period.
Of the $47 billion in term loans originated in 1988, banks, including lead banks and syndicate-participant banks, retained on their balance sheet 88.