Published online by Cambridge University Press: 15 August 2019
How do changes in banking regulation affect the syndicated loan market? Because branch networks and loan syndication both enable banks to diversify geographical credit risk, we investigate the staggered implementation of the Riegle–Neal Interstate Branching and Banking Efficiency Act of 1994. Exploiting that the act only changed the legal framework for out-of-state commercial banks, we find that branching deregulation decreased syndicated loan issuance but spurred bilateral lending to corporations. Consistent with a supply-driven substitution effect, this shift is also reflected in interest rate spreads. Our results suggest that changes to banking regulation can substantially alter credit allocation across loan types.
We are extremely grateful to Matthieu Chavaz, Stuart Fraser, Rustom Irani, Randy Kroszner, Frédéric Malherbe, James Mitchell, Steven Ongena, Philip Strahan, Michael Weber, and an anonymous referee for helpful discussions and comments. We also thank seminar and conference participants at the University of Chicago, Warwick University, DeFaul University, and Oxford University for their helpful feedback. Müller was supported by a Doctoral Training Centre scholarship granted by the Economic and Social Research Council (grant 1500313).