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Lending booms, reserves and the sustainability of short-term debt: inferences from the pricing of syndicated bank loans

  • Eichengreen, Barry
  • Mody, Ashoka

This paper analyzes the determinants of spreads on syndicated bank lending to emerging markets, treating the loan-extension and pricing decisions as jointly determined. Compared to the bond market, our findings highlight the role of international banks in providing credit to smaller borrowers about whom information is least complete and, more generally, support the interpretation of bank finance as dominating that segment of international financial markets characterized by the most pronounced information asymmetries. Domestic lending booms and low reserves in relation to short-term debt have been priced in the expected manner by international banks. The high level of short-term debt in East Asia was supported by high growth rates but was characterized by a knife-edge quality.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 63 (2000)
Issue (Month): 1 (October)
Pages: 5-44

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Handle: RePEc:eee:deveco:v:63:y:2000:i:1:p:5-44
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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  1. Ross Levine & Sara Zervos, . "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
  2. Eichengreen, Barry & Mody, Ashoka, 1998. "Interest Rates in the North and Capital Flows to the South: Is There a Missing Link?," International Finance, Wiley Blackwell, vol. 1(1), pages 35-57, October.
  3. Preece, Dianna & Mullineaux, Donald J., 1996. "Monitoring, loan renegotiability, and firm value: The role of lending syndicates," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 577-593, April.
  4. Sebastian Edwards, 1985. "The Pricing of Bonds and Bank Loans in International Markets: An Empirical Analysis of Developing Countries' Foreign Borrowing," NBER Working Papers 1689, National Bureau of Economic Research, Inc.
  5. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
  6. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
  7. Jeffrey Sachs & Daniel Cohen, 1982. "LDC Borrowing with Default Risk," NBER Working Papers 0925, National Bureau of Economic Research, Inc.
  8. James, Christopher, 1990. "Heterogeneous creditors and the market value of bank LDC loan portfolios," Journal of Monetary Economics, Elsevier, vol. 25(3), pages 325-346, June.
  9. Nadeem Ul Haque & Manmohan S. Kumar & Nelson Mark & Donald J. Mathieson, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 688-724, December.
  10. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
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