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Hamlet Without The Prince of Denmark: Relationship Banking and Conditionality Lending In The London Market For Foreign Government Debt, 1815 - 1913

This paper offers a theory of conditionality lending in 19th century international capital markets. We argue that ownership of reputation signals by prestigious banks rendered them able and willing to monitor government borrowing. Monitoring was a source of rent, and it led bankers to support countries facing liquidity crises in a manner similar to modern descriptions of “relationship” lending to corporate clients by “parent” banks. Prestigious bankers’ ability to implement conditionality loans and monitor countries’ financial policies also enabled them to deal with solvency. We find that, compared with prestigious bankers, bondholders’ committees had neither the tools nor the prestige required for effectively dealing with defaulters. Hence such committees were far less important than previous research has claimed.

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File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP08-2010.pdf
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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 08-2010.

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Length: 42 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:gii:giihei:heidwp08-2010
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  1. Rui Pedro Esteves, 2007. "Quis custodiet quem? Sovereign Debt and Bondholders` Protection Before 1914," Economics Series Working Papers 323, University of Oxford, Department of Economics.
  2. Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2003. "Crisis Resolution: Next Steps," Santa Cruz Department of Economics, Working Paper Series qt4cj974r4, Department of Economics, UC Santa Cruz.
  3. Olivier Accominotti & Marc Flandreau & Riad Rezzik, 2011. "The spread of empire: Clio and the measurement of colonial borrowing costs," Economic History Review, Economic History Society, vol. 64(2), pages 385-407, 05.
  4. Erik Lehmann & Neuberger, Doris, 2000. "Do Lending Relationships Matter? Evidence from Bank Survey Data in Germany," CoFE Discussion Paper 00-04, Center of Finance and Econometrics, University of Konstanz.
  5. Sharpe, Steven A, 1990. " Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-87, September.
  6. Marc Flandreau & Juan H. Flores, 2007. "Bonds and Brands : intermediaries and reputation in sovereign debt markets 1820-1830," Working Papers in Economic History wp07-12, Universidad Carlos III, Instituto Figuerola de Historia y Ciencias Sociales.
  7. MARCELO de PAIVA ABREU, 2006. "Brazil as a debtor, 1824-1931 -super-1," Economic History Review, Economic History Society, vol. 59(4), pages 765-787, November.
  8. Barry Eichengreen and Richard Portes., 1988. "Settling Defaults in the Era of Bond Finance," Economics Working Papers 8885, University of California at Berkeley.
  9. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
  10. Namsuk Kim & John Joseph Wallis, 2003. "The Market for American State Government Bonds in Britain and the United States, 1830-1843," NBER Working Papers 10108, National Bureau of Economic Research, Inc.
  11. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and the World Economy, pages 225-236 National Bureau of Economic Research, Inc.
    • Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106 National Bureau of Economic Research, Inc.
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