Lead banks' monitoring crucial in preventing borrower defaults and boosting profits
Banks are less likely to keep an eye on borrowers when they share credit risk with other banks or can sell their loans to others. However, when the main bank keeps a bigger stake in the loan, borrowers are less likely to default and do better financially in the long run. This is especially important for risky or unclear companies and during times of easy credit. When banks can pass on their risk to others, they might not watch borrowers closely, which can cause problems.