Journal Article

Bondholders versus bond-sellers? Investment banks and conditionality lending in the London market for foreign government debt, 1815–1913

Marc Flandreau and Juan H. Flores

in European Review of Economic History

Volume 16, issue 4, pages 356-383
Published in print November 2012 | ISSN: 1361-4916
Published online November 2012 | e-ISSN: 1474-0044 | DOI: http://dx.doi.org/10.1093/ereh/hes005
Bondholders versus bond-sellers? Investment banks and conditionality lending in the London market for foreign government debt, 1815–1913

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This paper offers a theory of conditionality lending in nineteenth-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.

Journal Article.  13234 words.  Illustrated.

Subjects: Industrial History ; Labour History ; Economic History

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