Lending booms, reserves and the sustainability of short-term debt: Inferences from the pricing of syndicated bank loans

This paper analyzes the determinants of spreads on syndicated bank lending to emerging markets, treating the loan-extension and pricing decisions as j ointly determined. Compared to the bond market, our findings highlight the role of international banks in providing credit to smaller borrowers about whom information is least complete and, more generally, support the interpr etation of bank finance as dominating that segment of international financi al markets characterized by the most pronounced information asymmetries. Do mestic lending booms and low reserves in relation to short-term debt have b een priced in the expected manner by international banks. The high level of short-term debt in East Asia was supported by high growth rates but was ch aracterized by a knife-edge quality. (C) 2000 Elsevier Science B.V. All rig hts reserved. JEL classification: F21; F30.