Is the Corporate Loan Market Globally Integrated? A Pricing Puzzle




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    • Federal Reserve Board. This paper represents the authors' opinions and not necessarily those of the Board of Governors, the Federal Reserve System, or other members of its staff. We thank the editor and referee, John Ammer, Christa Bouwman, Sally Davies, Bob DeYoung, Mark Flannery, Craig Furfine, Reint Gropp, Philipp Hartmann, Harry Huizinga, Jan Krahnen, Arvind Mahajan, George Pennacchi, Tony Saunders, David Smith, Jukka Vesala, Steve Weinberg, and participants in numerous conference sessions and seminars for useful comments; Dimitri Kiriazov and Duncan Moon of Dealogic for assistance with the data; and Alexandra Resch and Nathanael Clinton for excellent research assistance.


We offer evidence that interest rate spreads on syndicated loans to corporate borrowers are economically significantly smaller in Europe than in the United States, other things equal. Differences in borrower, loan, and lender characteristics do not appear to explain this phenomenon. Borrowers overwhelmingly issue in their natural home market and bank portfolios display home bias. This may explain why pricing discrepancies are not competed away, though their causes remain a puzzle. Thus, important determinants of loan origination market outcomes remain to be identified, home bias appears to be material for pricing, and corporate financing costs differ across Europe and the United States.