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This analysis assesses systemic risk from markdowns in syndicated loans, highlighting the need for bank recapitalization.
The objective of this paper is to assess the impact of single-name and widespread markdowns in syndicated leveraged loans on systemic risk in the euro area. Systemic risk implications of markdowns are simulated with network valuation models (as in Bardoscia et al. (2016)) and extended to accommodate recapitalization of systemically important banks. Key results indicate that, while the impact of single-name and widespread markdowns in syndicated leveraged loans on banks’ equity is not significant under a strong confidence in the banking system, their impact could be devastating if confidence is low. This could be mitigated by timely and calibrated recapitalization of systemically important banks.
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Andre Santos (2026) studied this question.
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