Multiple Bank Lending and Seniority in Claims
MDI Working Paper
33 Pages Posted: 17 Sep 2002
In this paper, we study why multiple banks lend to the same project even though they are not constrained by the availability of funds. The choice of the amount of debt, as well as the hierarchy of debt claim is endogenized. We find that the hierarchy among the creditors is exclusively determined by their monitoring costs. We identify conditions under which group lending is efficient. We also establish a possible rationale behind the observed phenomenon where a system of consortium lending is increasingly being replaced by syndicated lending.
Keywords: Multiple bank lending, Seniority of claims, Endogenous debt
JEL Classification: G21, G32
Suggested Citation: Suggested Citation