Hamlet Without The Prince of Denmark: Relationship Banking and Conditionality Lending In The London Market For Foreign Government Debt, 1815 - 1913
AbstractThis paper offers a theory of conditionality lending in 19th century international capital markets. We argue that ownership of reputation signals by prestigious banks rendered them able and willing to monitor government borrowing. Monitoring was a source of rent, and it led bankers to support countries facing liquidity crises in a manner similar to modern descriptions of “relationship” lending to corporate clients by “parent” banks. Prestigious bankers’ ability to implement conditionality loans and monitor countries’ financial policies also enabled them to deal with solvency. We find that, compared with prestigious bankers, bondholders’ committees had neither the tools nor the prestige required for effectively dealing with defaulters. Hence such committees were far less important than previous research has claimed.
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Bibliographic InfoPaper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 08-2010.
Length: 42 pages
Date of creation: Jun 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-BAN-2010-10-23 (Banking)
- NEP-HIS-2010-10-23 (Business, Economic & Financial History)
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