Funding Empire: Risk, Diversification, and the Underwriting of Early Modern Sovereign Loans
Lending to early modern monarchs could be very profitable, yet highly risky. International financiers unlocked the excess returns in sovereign debt markets by parceling out the risk and transferring it to downstream investors in exchange for financial intermediation fees. We link two sovereign loans to Philip II of Spain to a downstream Genoese partnership. After examining the performance of the loans through the 1596 bankruptcy and its ensuing settlement, we conclude that the risk diversification scheme used by international bankers worked. Shares in sovereign loans were held within highly diversified portfolios, enhancing their returns in normal times and not posing excessive risks when caught in a default.
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| Length: | 24 pages |
| Date of creation: | 06 Jul 2011 |
| Date of revision: | 06 Jul 2011 |
| Handle: | RePEc:ubc:bricol:mauricio_drelichman-2011-15 |
| Contact details of provider: | Web page: http://www.economics.ubc.ca/
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009.
"Varieties of Crises and Their Dates,"
Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly
Princeton University Press.
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- Reinhart, Carmen, 2009. "The Second Great Contraction," MPRA Paper 21485, University Library of Munich, Germany.
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- Drelichman, Mauricio & Voth, Hans-Joachim, 2010. "The Sustainable Debts of Philip II: A Reconstruction of Castile's Fiscal Position, 1566–1596," The Journal of Economic History, Cambridge University Press, vol. 70(04), pages 813-842, December.
- Mauricio Drelichman & Joachim Voth, 2006. "The sustainable debts of Philip II: A reconstruction of Castile's fiscal position, 1566-1596," Economics Working Papers 1121, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2009.
- Drelichman, Mauricio & Voth, Hans-Joachim, 2007. "The Sustainable Debts of Philip II: A Reconstruction of Castile's Fiscal Position, 1566-1596," Economics working papers drelichman-07-11-06-09-33, Vancouver School of Economics, revised 08 Apr 2010.
- James Conklin, 1998. "The Theory of Sovereign Debt and Spain under Philip II," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 483-513, June. Full references (including those not matched with items on IDEAS)
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