Funding Empire: Risk, Diversification, and the Underwriting of Early Modern Sovereign Loans
AbstractLending to early modern monarchs could be very profitable, yet highly risky. International financiers unlocked the excess returns in sovereign debt markets by parceling out the risk and transferring it to downstream investors in exchange for financial intermediation fees. We link two sovereign loans to Philip II of Spain to a downstream Genoese partnership. After examining the performance of the loans through the 1596 bankruptcy and its ensuing settlement, we conclude that the risk diversification scheme used by international bankers worked. Shares in sovereign loans were held within highly diversified portfolios, enhancing their returns in normal times and not posing excessive risks when caught in a default.
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Bibliographic InfoPaper provided by Vancouver School of Economics in its series Economics working papers with number mauricio_drelichman-2011-15.
Length: 24 pages
Date of creation: 06 Jul 2011
Date of revision: 06 Jul 2011
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Web page: http://www.economics.ubc.ca/
sovereing debt; syndication; diversification; Spain; Genoa;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-07-27 (All new papers)
- NEP-HIS-2011-07-27 (Business, Economic & Financial History)
- NEP-IFN-2011-07-27 (International Finance)
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- Irigoin, A & Grafe, R, 2012. "Bounded Leviathan: or why North & Weingast are only right on the right half," MPRA Paper 39722, University Library of Munich, Germany.
- Maria Alejandra Irigoin & Regina Grafe, 2012. "Bounded Leviathan: or why North and Weingast are only right on the right half," Economic History Working Papers 44492, London School of Economics and Political Science, Department of Economic History.
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