Sovereign Debt Restructuring and Bank Capital

Yoram Landskroner and Jacob Paroush

International Journal of the Economics of Business, 1999, vol. 6, issue 2, 197-207

Abstract: The focus of this paper is on the interaction between a bail-out loan decision of a bank to a sovereign borrower and the adequacy of the bank's capital. The new loan is granted on two conditions: First, it must improve the likelihood of repayment of the outstanding loan; second the bank should have adequate capital.We find that in general a positive relationship exists between capital and the bail out loan and between existing debt and the new loan. However, under certain circumstances a negative relationship exists between the bank's capital and the new loan. Empirical results support the main implications of the theoretical model.

Keywords: Sovereign Debt; Bail-out Loans; Capital Adequacy (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1080/13571519984223

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