#08-04
Liquidity Risk and Syndicate Structure
Evan Gatev and Philip E. Strahan, January 2008
Abstract: We offer a new explanation of loan syndicate structure based on banks’ comparative advantage
in managing systematic liquidity risk. When a syndicated loan to a rated borrower has
systematic liquidity risk, the fraction of passive participant lenders that are banks is about 8%
higher than for loans without liquidity risk. In contrast, liquidity risk does not explain the share
of banks as lead lenders. Using a new measure of ex-ante liquidity risk exposure, we find further
evidence that syndicate participants specialize in liquidity-risk management while lead banks
manage lending relationships. Links from transactions deposits to liquidity exposure are about
50% larger at participant banks than at lead arrangers.
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