Collective action clauses in sovereign bonds
AbstractThe universal adoption of collective action clauses (CACs) was the most promising reform proposal in recent debates on sovereign debt crisis management. Academics and the public sector had been promoting CACs since 1995, yet market practice did not begin to change until 2003. This delay is often attributed to the opposition of investors and sovereign borrowers to CACs. This article evaluates the publicly stated as well as the suspected private motives of the two sides to block the spread of CACs. It draws on a wide range of existing evidence and adds some new theoretical considerations to show that there is no reason to be sceptical of CACs unless bailouts exist as an alternative crisis resolution mechanism. This conclusion may be of interest purely for the sake of historical accuracy. But more importantly, it may help to better understand and to assess any potential future resistance from market participants, e.g. in the process of introducing CACs in bonds governed by German law.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 35333.
Date of creation: 2011
Date of revision:
sovereign debt restructuring; sovereign default; collective action clauses; moral hazard;
Find related papers by JEL classification:
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-19 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Bradley & James D. Cox & Mitu Gulati, 2010. "The Market Reaction to Legal Shocks and Their Antidotes: Lessons from the Sovereign Debt Market," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 39(1), pages 289-324, 01.
- Richards, Anthony & Gugiatti, Mark, 2003.
"Do Collective Action Clauses Influence Bond Yields? New Evidence from Emerging Markets,"
International Finance, Wiley Blackwell,
Wiley Blackwell, vol. 6(3), pages 415-47, Winter.
- Mark Gugiatti & Anthony Richards, 2003. "Do Collective Action Clauses Influence Bond Yields? New Evidence from Emerging Markets," RBA Research Discussion Papers, Reserve Bank of Australia rdp2003-02, Reserve Bank of Australia.
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