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Financial crises, moral hazard and the "speciality" of the international interbank market: further evidence from the pricing of syndicated bank loans to emerging markets

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  • Francesco Spadafora

    (Banca d'Italia)

Abstract

We analyse the evolution of emerging market loan spreads at a more disaggregated level than other current studies, providing statistical support to the assumption of the "speciality" of the international interbank market, to the extent that the pricing of interbank credit is insensitive to the nature (public or private) of the borrower. In sharp contrast, the public or private nature of other borrowers, such as corporates or financial firms, causes significant differences in spreads. These results could be interpreted as evidence of the possible role played by implicit government guarantees in the international interbank market, which lower the incentives for participants to monitor counterpart risk very closely. Furthermore, the specificity of banks is witnessed by the fact that only spreads on loans to emerging market banks clearly declined following the 1995 Mexican bailout, whereas evidence on the pricing of lending to corporates and financial firms is more ambiguous. Although, on the one hand, this might support the view that financial assistance from the IMF gives rise to moral hazard, on the other hand, contrary to expectations, spreads on loans to Asian banks, the major candidates in the current policy debate on moral hazard, have been unaffected by the IMF's response to Mexico's crisis.

Suggested Citation

  • Francesco Spadafora, 2002. "Financial crises, moral hazard and the "speciality" of the international interbank market: further evidence from the pricing of syndicated bank loans to emerging markets," Temi di discussione (Economic working papers) 438, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_438_02
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    References listed on IDEAS

    as
    1. George Soros, 1999. "The International Financial Crisis," Challenge, Taylor & Francis Journals, vol. 42(2), pages 58-76, March.
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    3. Monica Paiella, 2001. "Limited financial market participation: a transaction cost-based explanation," IFS Working Papers W01/06, Institute for Fiscal Studies.
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    More about this item

    Keywords

    risk premia; moral hazard; financial crises;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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