International bank lending and corporate debt structure
We explore how corporate borrowing is affected around the world when banks are pressured to reduce their lending. Starting from a cross-national dataset for companies that depend on banks for their funding, we improve data on the capital structure of companies using data on syndicated loans and bonds. Next, we ask if US corporate borrowing from banks, non-bank lenders and bond markets has changed after the European Banking Authority increased its capital requirements for banks in 2011. We focus on two big ones types of bank loans: line of credit commitments and bank loans. .
International bank loans tend to grow and contract both frequently and sharply. In this article, we study these fluctuations in detail, to determine whether they lead to reductions in bank line of credit commitments or term loans. In addition, we examine whether domestic credit markets cushion these shocks and, if so, what relative roles are played by their two main segments: the corporate bond and loan markets. Using data on syndicated loans allows us to explore the role of non-bank financial intermediaries in the loan market.
As suggested by the previous literature, we find that banks reduce their international lending when faced with pressure to reduce their lending. Our first unprecedented observation is to show that this contraction in international credit relates more to lines of credit, which are drying up, than to term bank loans, which remain resilient. Firms obtain lines of credit from non-bank financial intermediaries and do not increase bond issuance. Taken together, our results suggest that a diversified domestic loan market, including nonbank financial institutions, can help cushion reductions in international lending.
Using an international sample of bank-dependent public enterprises, we study the international impact of a change in banking regulations on corporate borrowing. For identification, we examine how US corporate commitments to banks, non-bank lenders, and bond markets are evolving after an increase in capital requirements implemented by the European Banking Authority (EBA) in 2011. We find that US companies are experiencing a reduction in credit lines but not in term loans from EU banks. In addition, US companies are able to offset the reduction in EU banks’ credit lines by obtaining liquidity facilities from US non-bank financial institutions, without increasing borrowing in corporate bond markets. . These results suggest that diversified domestic lending markets, with banks and non-bank financial institutions providing business loans, can help overcome cuts in cross-border bank financing.
JEL classification: G21, G32, F32, F34
Keywords: lines of credit, term loans, bank capital requirements, company level data, non-bank financial intermediaries.