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Syndicate Risk

Syndicate risk refers to the risks associated with participating in a group of lenders or underwriters that jointly finance or underwrite a large loan or security issuance. In syndicate loans, the risk is shared among multiple institutions, reducing exposure for each participant but introducing complexities such as coordination risk, credit risk from other participants, and the risk that not all syndicate members fulfill their obligations.

Example

A bank participating in a syndicated loan to a multinational corporation must assess not only the borrower’s credit risk but also the reliability and creditworthiness of the other syndicate members.

Key points

• Risk involved in participating in a lending or underwriting syndicate.

• Risk is shared but involves coordination and reliance on other participants.

• Common in large-scale loans or bond issuances.

Quick Answers to Curious Questions

They form syndicates to spread the risk of large loans or securities among multiple institutions, reducing individual exposure.

Risks include coordination challenges, credit risk from the borrower and other syndicate members, and the potential for operational difficulties.

Syndicate risk may lead to slightly higher pricing or interest rates to compensate for the complexities and potential risks of working with multiple institutions.