Loan Syndication
How ten banks agreeing to each lend $10 million solved a problem no single bank could — and built the infrastructure that funds highways, power plants, and factories.
In 1985, a large manufacturing company needed to borrow $100 million. No single bank wanted to absorb that risk. But 10 banks each agreeing to lend 10 million made the deal manageable. One bank took the lead, structured the terms, and promised to manage repayment. The other nine banks got certainty and diversification. Loan syndication was born from basic mathematics of risk. The economics are elegant. The lead bank earns a fee for structuring the loan, typically one to 2%. Participating banks earn interest stressed spread plus a smaller origination fee. The borrower gets better rates because the risk is shared. Everyone wins through division of labor. The lead bank stays closest to the customer. Participants provide capital. By the 2000s, syndication became infrastructure for global finance.
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