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
Contact details of provider:
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)
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.:
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Economics Working Papers
1121, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2009.
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- Drelichman, Mauricio & Voth, Hans-Joachim, 2007. "The Sustainable Debts of Philip II: A Reconstruction of Castile's Fiscal Position, 1566-1596," Economics working papers drelichman-07-11-06-09-33, Vancouver School of Economics, revised 08 Apr 2010.
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