Lending Decisions and Spreads: The Syndicated Euro-Currency Credit Market

The paper analyses the spreads over LIBOR (London Inter-bank offer rate) charged on syndicated Euro-currency credits. Our analysis suggests that Euro-market spreads for industrial countries are responsive to the extent of positive maturity transformation by Euro-banks. Though Euro-banks seem to be indifferent to financial risk of lending to industrial countries, it is not so in case of the level of economic activity in these countries. Spreads for other countries get determined in relation to spreads for industrial countries and their own creditworthiness.