The menu approach to developing country external debt : an analysis of commercial banks'choice behavior
This study provides evidence that bank characteristics are significant determinants of commercial-bank choice behavior when confronted with a menu of options. It develops a theoretical model of bank choice behavior and empirically tests its implications using data from the 1988 Brazilian financing package. The empirical results show that bank characteristics are capable of explaining over 80 percent of this choice. One of the main implications of the theoretical model is that under risk-neutrality assumption, financially stronger and more exposed banks prefer to exit. The findings have several important implications for the new debt reduction strategy. (i) First, larger debt reductions operated on a market basis are more costly, per unit of debt reduced. In order to increase debt reduction, weaker banks must be convinced to exit, increasing the needed exit price. (ii) Second, the exit price depends on the strength of the banking industry, and thus, the effectiveness of the present debt strategy is affected by changes in the world economy. In periods of booms, banks become stronger and exit prices are reduced. (iii) Third, regulators can affect the cost of debt reduction by altering the regulatory framework within which the banks operate. (iv) Fourth, LDC debt reductions are beneficial to the deposit insurance agencies of the major creditor nations.
|Date of creation:||30 Nov 1990|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
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.:
- Amemiya, Takeshi, 1981. "Qualitative Response Models: A Survey," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1483-1536, December.
- Sharpe, William F., 1978. "Bank Capital Adequacy, Deposit Insurance and Security Values," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(04), pages 701-718, November.
- Kareken, John H & Wallace, Neil, 1978. "Deposit Insurance and Bank Regulation: A Partial-Equilibrium Exposition," The Journal of Business, University of Chicago Press, vol. 51(3), pages 413-38, July.
- Kareken, John H, 1986. "Federal Bank Regulatory Policy: A Description and Some Observations," The Journal of Business, University of Chicago Press, vol. 59(1), pages 3-48, January.
- Jeffrey Sachs & Harry Huizinga, 1987.
"U.S. Commercial Banks and the Developing-Country Debt Crisis,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 18(2), pages 555-606.
- Sachs, J. & Huizinga, H.P., 1987. "U.S. commercial banks and the developing-country debt crisis," Other publications TiSEM ada14007-7229-4f6d-a016-f, Tilburg University, School of Economics and Management.
- Jeffrey Sachs & Harry Huizinga, 1987. "U.S. Commercial Banks and the Developing Country Debt Crisis," NBER Working Papers 2455, National Bureau of Economic Research, Inc.
- Russell Davidson & James G. MacKinnon, 1982.
"Convenient Specification Tests for Logit and Probit Models,"
514, Queen's University, Department of Economics.
- Davidson, Russell & MacKinnon, James G., 1984. "Convenient specification tests for logit and probit models," Journal of Econometrics, Elsevier, vol. 25(3), pages 241-262, July.
- William F. Sharpe, 1977. "Bank Capital Adequacy, Deposit Insurance and Security Values, Part I," NBER Working Papers 0209, National Bureau of Economic Research, Inc.
- Huizinga, H.P., 1989. "The commercial bank claims on developing countries : How have the banks been affected?," Other publications TiSEM 1c3c7fe3-3bdf-42d9-9f7c-6, Tilburg University, School of Economics and Management.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:530. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.