Journal of Financial Economics 72 (2004) 555–580 The role of syndicate structure in bank underwriting $ RajeshP.Narayanan a, *,KasturiP.Rangan b ,NandaK.Rangan a a Department of Finance, Ohio University, Athens, OH 45701, USA b Weatherhead School of Management, Case Western Reserve University, Cleveland, OH 44106, USA Received 13 July 2001; accepted 19 January 2002 Abstract The re-entry of banking organizations into securities underwriting raises concerns over the possibility of banks using their lending-generated private information to benefit themselves and the issuing firm at the expense of investors. This paper illustrates the use of syndicate structure by lending banks to credibly commit against such opportunistic behavior and to exploit their proprietary information to lower issuance cost for borrowing firm issuers. We show that lending banks predominantly comanage with a high reputation nonlending underwriter.Wepresentevidencethat,relativetoinvestmentbanks,comanagingissuesallows lending banks to lower issuance costs for borrowing firms. r 2003 Elsevier B.V. All rights reserved. JEL classification: G21; G24; L51 Keywords: Glass-Steagall; Underwriting; Credible commitment ARTICLE IN PRESS $ The authors would like to acknowledge helpful comments from an anonymous referee, David Brown, MarkFlannery,ChrisJames,JayRitter,andfromparticipantsatthe2001EuropeanFinanceAssociation and Financial Management Association meetings as well as the 2002 Financial Management Association European, Western Finance Association, and Eastern Finance Association meetings. The authors would like to thank Doug Voelz of the Ohio Company for his numerous patient conversations that helped provideabetterunderstandingofbankunderwritingpracticeandLoraMcInturfforhervaluableresearch assistance. Rajesh Narayanan acknowledges the Gardner fellowship, and Nanda Rangan, the Bank One Professorship, for funding support for this project. *Corresponding author. Tel.: +1-740-593-2089; fax: +1-740-593-9539. E-mail address: narayana@ohio.edu (R.P. Narayanan). 0304-405X/$-see front matter r 2003 Elsevier B.V. All rights reserved. doi:10.1016/S0304-405X(03)00187-9