Inter-market competition and bank loan spreads: Evidence from the securities offering reform

Research output: Contribution to journalArticle

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Abstract

I provide evidence of a new mechanism by which access to public securities mitigates the bank hold-up problem and reduces loan spreads – it increases a borrower's bargaining power vis-à-vis a lender by offering a bank loan substitute. Difference-in-differences results indicate that loan spreads decline following legislation that makes public securities more attractive, but only when public securities represent a credible substitute for the bank loan (i.e., for term loans taken out by credit rated borrowers). Spreads on revolving lines of credit, which are more complementary with public securities, increase.

Original languageEnglish (US)
Pages (from-to)107-117
Number of pages11
JournalJournal of Banking and Finance
Volume94
DOIs
StatePublished - Sep 1 2018

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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