Bank Specialness, Credit Lines, and Loan Structure

We find that credit lines (CLs) play special roles in syndicated lending, committing lead banks to screen, monitor, and invest in relationships with borrowers. Institutional term loans (ITLs) packaged with CLs have lower interest rate spreads in the primary market and narrower bid-ask spreads in the secondary market. Findings support the Bank Specialness Hypothesis that banks significantly alleviate information problems in the syndicated loan market. Additional tests using the Lehman bankruptcy as a quasi-natural experiment confirm our conclusions. Our tests extend the literature on bank specialness, the value of CLs, and optimal loan contracting. Our findings also have policy implications.