The relationship between capital requirements and syndicated lending is an empirical question. Capital constraints are an incentive for bank lenders to participate in loan syndicates. According to Simons (1993), banks constrained by capital requirements will be unwilling to put a sizable loan on their balance sheets because this lowers their capital-to-asset ratios. In which case, banks may opt to participate in a loan syndicate to still pursue lending opportunities. Berger and Udell (1993) and Pennacchi (1988) suggest that capital requirements encourage banks to participate in loan-sale activities.2
Godlewski (2008) notes that capital requirements should positively influence the formation of loan syndicates by motivating "lending limit respect," in which stronger capital requirements increase the motivation relevance. Capital-to-asset ratios are, therefore, positively associated to a bank's exposure to loan syndication. The author, however, also observes a negative relation between capital requirements and loan syndication. Capital requirements reduce the number of eligible banks with capital and funding advantages to participate in syndicated lending. Dennis and Mullineaux (2000) argue that as capital-to-asset ratios increase, the prospect for loan syndication falls, provided loan syndications are driven by capital requirements.