Caveat Emptor: Coping With Sovereign Risk Without the Multilaterals

Marc Flandreau

No 2004, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies how private banks dealt with sovereign risk before World War I. At that time there was no multilateral institution to bail out borrowers in default and sovereign rating had not yet developed. All the burden of information collection and processing was borne out by individual banks. We focus on the experience of Crédit Lyonnais, which grew over the period into the largest international bank in a country that was the second largest world creditor. In 1871, Crédit Lyonnais set up a Service d'Etudes Financières (SEF), a research department whose aim was to study borrowing countries. The lending spree of the late 1880s, and the bust which ensued, provided the impetus for a massive expansion of SEF, which then developed techniques to analyse sovereign risks. We argue that these methods are an essential aspect of the market mechanism as it operated before World War I: given the prominence of Crédit Lyonnais on the international scene, its perceptions influenced the size and direction of capital flows.

Keywords: private sector risk models; rating; Sovereign Risk (search for similar items in EconPapers)
JEL-codes: F34 H63 N20 (search for similar items in EconPapers)
Date: 1998-10
View list of references

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP2004.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:2004

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP2004.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().