A banking syndicate is a group of investors, often a set of investment banks, who have come together in order to function as an underwriting group for a specific project. Typically, a banking syndicate is not a permanent entity, although the banks involved may maintain a casual communication for the purpose of being part of future financial opportunities to collaborate on financing projects. Here is some information on how a banking syndicate functions, and which factors may lead to the creation of this sort of alliance.
The formation of a banking syndicate usually takes place when an investment bank becomes aware of a potential project that shows great promise of creating an excellent return, provided that enough resources can be borrowed to launch and finance the project until it begins to generate revenue. In some cases, one investment bank may be unwilling or unable to supply the resources required to fund the project. Instead of counseling the borrower to seek funding elsewhere, the bank will contact other banks, with an eye toward jointly funding the project. With enough banks involved in the banking syndicate, it is possible for all the member banks to participate in the project, realize a return on the investment, and keep the risk factor within reason for all parties concerned.
Underwriting groups such as a banking syndicate is more or less functioning as a purchase group. As part of the agreement to extended financial support to the borrower, there are usually concessions made in the way of collateral or the transfer of shares or other assets to the control of the syndicate for the duration of the loan. This helps to ensure that if the venture does ultimately fail, the banking syndicate has a reasonable chance to recoup at least part of their investment.
Because the nature of a banking syndicate is not that of a permanent entity, it is very possible for various combinations of investment banks to come together for a project, then go their own ways once the project has been completed. However, it is not uncommon for investment banks to maintain steady contact with one another on venture projects that come to the attention of any one of the banks. This keeps the option of forming another banking syndicate to fund a particular project both viable and reasonably easy to accomplish, especially if past joint ventures proved to be profitable for the banks who took part in a previous banking syndicate project.
