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Lending Booms, Reserves, and the Sustainability of Short-Term Debt: Inferences from the Pricing of Syndicated Bank Loans

  • Barry Eichengreen
  • Ashoka Mody

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7113.

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Date of creation: May 1999
Date of revision:
Publication status: published as Eichengreen, Barry and Ashoka Mody. "Lending Booms, Reserves And The Sustainability Of Short-Term Debt: Inferences From The Pricing Of Syndicated Bank Loans," Journal of Development Economics, 2000, v63(1,Oct), 5-44.
Handle: RePEc:nbr:nberwo:7113
Note: IFM ME
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  1. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  2. Jeffrey Sachs & Daniel Cohen, 1982. "LDC Borrowing with Default Risk," NBER Working Papers 0925, National Bureau of Economic Research, Inc.
  3. 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.
  4. Edwards, Sebastian, 1986. "The pricing of bonds and bank loans in international markets : An empirical analysis of developing countries' foreign borrowing," European Economic Review, Elsevier, vol. 30(3), pages 565-589, June.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
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