What is different about international lending? |
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| Authors: | Chowdhry B |
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| Institution: | Anderson Graduate School of Management, University of California at Los Angeles, Los Angeles, CA 90024-1481, USA |
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| Abstract: | An attempt is made to explain how enforceability is achievedin international debt contracts. Each bank announces the policyof denying credit to borrowers who default and chooses to adhereto it to maintain its reputation of being a tough bank to disciplineits other borrowers. Loans are made by syndicates of banks inorder to make the penalty for default severe enough so borrowerswould choose not to default voluntarily. The model predictsthat the interest rate charges on loans is smaller for the largerborrowers. Also, for any given borrower, the interest rate mayfall after each successive default. |
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