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Risks to Lenders and Borrowers in International Capital Markets

In: International Capital Flows

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  • Benjamin Hermalin
  • Andrew K. Rose
  • Peter M. Garber
  • Andrew Crockett
  • David W. Mullins, Jr

Abstract

This paper provides a framework for understanding the risks to borrowers and lenders in capital markets. We begin with a description of a capital markets in a domestic context. This allows us to focus on two key imperfections which lie at the heart of all financial systems: imperfect information, and the difficulty of making credible commitments for repayment. In the international context, these problems tend to be exacerbated. There are also two sources of risk in international borrowing that are absent in a purely domestic context: the risk that sovereign borrowers will default, and the risk of macroeconomic instability that stems from the impact of net capital flows on the monetary system.

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This chapter was published in:

  • Solomon Fabricant, 1999. "International Capital Flows," NBER Books, National Bureau of Economic Research, Inc, number feld99-2, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 9802.

    Handle: RePEc:nbr:nberch:9802

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    References

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    1. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
    2. Benjamin E. Hermalin & Nancy E. Wallace, 1997. "Firm Performance and Executive Compensation in the Savings and Loan Industry," Finance 9710006, EconWPA.
    3. Barry Eichengreen & Andrew K. Rose, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Papers 6370, National Bureau of Economic Research, Inc.
    4. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
    5. Benjamin E. Hermalin & Nancy E. Wallace, 1994. "The Determinants of Efficiency and Solvency in Savings and Loans," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 361-381, Autumn.
    6. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
    7. Gabriel Fuentes, 1996. "The use of village agents in rural credit delivery," Journal of Development Studies, Taylor & Francis Journals, vol. 33(2), pages 188-209.
    8. Eaton, Jonathan, 1990. "Debt Relief and the International Enforcement of Loan Contracts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 43-56, Winter.
    9. Gertler, M. & Rose, A., 1991. "Finance, growth, and public policy," Policy Research Working Paper Series 814, The World Bank.
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    Cited by:
    1. Minetti, Raoul & Peng, Tao, 2013. "Lending constraints, real estate prices and business cycles in emerging economies," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2397-2416.
    2. Arias, Guillaume & Erlandsson, Ulf, 2004. "Regime switching as an alternative early warning system of currency crises - an application to South-East Asia," Working Papers 2004:11, Lund University, Department of Economics.
    3. Aysun, Uluc & Honig, Adam, 2011. "Bankruptcy costs, liability dollarization, and vulnerability to sudden stops," Journal of Development Economics, Elsevier, vol. 95(2), pages 201-211, July.
    4. Claudia M. Buch, 2000. "Are Banks Different? Evidence from International Data," Kiel Working Papers 1012, Kiel Institute for the World Economy.
    5. Michael D. Bordo & Barry Eichengreen & Douglas A. Irwin, 1999. "Is Globalization Today Really Different than Globalization a Hunderd Years Ago?," NBER Working Papers 7195, National Bureau of Economic Research, Inc.
    6. Marin, Dalia & Schnitzer, Monika, 2006. "When is FDI a Capital Flow?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 126, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    7. Aysun, Uluc, 2008. "Automatic stabilizer feature of fixed exchange rate regimes," Emerging Markets Review, Elsevier, vol. 9(4), pages 302-328, December.
    8. Matteo Iacoviello & Raoul Minetti, 2003. "Domestic and Foreign Lenders and International Business Cycles," Boston College Working Papers in Economics 554, Boston College Department of Economics, revised 05 Dec 2003.
    9. Iacoviello, Matteo & Minetti, Raoul, 2006. "International business cycles with domestic and foreign lenders," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2267-2282, November.
    10. Pablo Bustelo & Clara Garcia & Iliana Olivie, 1999. "Global and Domestic Factors of Financial Crises in Emerging Economies: Lessons from the East Asian Episodes (1997-1999)," Working Papers 002, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    11. Clara Garcia, 2004. "Capital Inflows, Policy Responses, and Their Ill Consequences: Thailand, Malaysia, and Indonesia in the Decade Before the Crises," Working Papers wp81, Political Economy Research Institute, University of Massachusetts at Amherst.

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