1. 1

2. 2

3. 3

4. 4

5. 5

6. 6

7. 7

8. 8

9. Syndicated Lending Bank loans in which a lead bank “originates” a loan and lines up other financial institutions to share a portion of the loans. – Borrowers are large. Syndicate includes other non-bank financial institutions – investment banks like Goldman Sachs and finance companies such as GE capital – as well as institutional investors like CLOs, hedge funds, mutual funds, insurance companies, and pension funds. Syndicated loan market is part of “shadow banking system” 9

10. To Separate Supply and Demand Look at relationship between lending and reliance on short-term debt (rather than insured deposits). – If banks with greater reliance on short-term debt cut lending more, that would be evidence of decline in a loan supply. Look at relationship between lending and vulnerability to credit-line drawdowns. – If banks with more vulnerability to credit-line drawdowns cut lending more, that would be evidence of a decline in loan supply. 10

11. Evidence A bank with the median deposits-to-assets ratio reduced its monthly number of loan originations by 36% between August and December 2008. A bank with a deposits-to-assets ratio one standard deviation below the mean (i.e., greater reliance on short- term debt than the mean) reduced loan originations by 49%. A bank with a deposits-to-assets ratio one standard deviation above the mean (i.e., less reliance on short-term debt than the mean) reduced loan originations by 21%. Evidence of Decline in Loan Supply 11

12. Link Between Unexpected Drawdowns and Loans Focus on banks that co-syndicated revolvers with Lehman (other banks would have to pick up slack). 12

13. Evidence Banks that co-syndicated a larger fraction of their revolving credit lines with Lehman reduced their lending more. – Banks with a one standard deviation higher exposure to Lehman (than point estimate in table 6) experienced a 44% drop in lending. – Banks with a one standard deviation lower exposure to Lehman (than point estimate in table 6) experienced a 25% drop in lending. Evidence of Decline in Loan Supply 13