Good Old Times

"This paper offers a theory of conditionality lending in 19th-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." (link)