Who are the buyers of U.S. loans and why do they participate in this activity?
The buyers of loans include (1) investment banks because they are often involved with the initial transaction that leads to the issuance of the debt; (2) vulture funds since they invest in portfolios of risky loans; (3) domestic banks in order to circumvent regional banking and branching restrictions so as to increase regional and customer diversification; (4) foreign banks in order to obtain a presence in the U.S. market without incurring the costs of a branch network; (5) insurance companies and pension funds in attempts to earn higher yields, when permissible; (6) closed and open-end bank loan mutual funds to earn fee income on loan syndications; and (7) non financial corporations to earn higher yields.
a. What are vulture funds?
b. What are three reasons the interbank market has been shrinking?
c. What are reasons a small bank would be interested in participating in a loan syndication?