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Debt Concentration and Bargaining Power: Large Banks, Small Banks, and Secondary Prices


  • Fernández, Raquel
  • Ozler, Sule


Commercial bank debts of developing countries are held by a heterogenous group of banks. Here we focus on the distinction between large international money-centre banks and smaller domestic banks. In particular we investigate the role of debt concentration – the amount of a country’s debt held by large banks relative to small banks – on the secondary market price for these loans. Our empirical investigation indicates that concentration is an important determinant of secondary market discounts: higher concentration decreases the discount. An explanation for this finding is provided in the context of a bargaining model that endogenizes the level of the maximum penalty that banks can credibly threaten to impose on a recalcitrant debtor. We show that the banks’ bargaining power increases with the degree of debt concentration, which in turn increases repayment and secondary market prices (and hence lowers discounts).

Suggested Citation

  • Fernández, Raquel & Ozler, Sule, 1997. "Debt Concentration and Bargaining Power: Large Banks, Small Banks, and Secondary Prices," CEPR Discussion Papers 1655, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1655

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    More about this item


    Bargaining Power; Secondary Market Prices; Sovereign Debt;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems


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