Developing Country Debt and the Market Value of Large Commercial Banks

Working Paper No. 1470 The effect on commercial banks of exposure to large amounts of developing country debt has been a topic of increasing concern in recent years. Fear of default on the part of the debtor countries has led to fears for the solvency of the creditor banks since in many cases the to...

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Bibliographic Details
Published in:NBER Working Paper Series 1984-09, p.1470
Main Authors: Kyle, Steven C, Sachs, Jeffrey
Format: Article
Language:English
Subjects:
Bank stocks
Banking industry
Banks
Book value
Commercial banks
Debt
Developing countries
Discounts
Economic theory
LDCs
Loans
Valuation
Variables
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Summary:Working Paper No. 1470 The effect on commercial banks of exposure to large amounts of developing country debt has been a topic of increasing concern in recent years. Fear of default on the part of the debtor countries has led to fears for the solvency of the creditor banks since in many cases the total of outstanding exposure to risky debtors exceeds the entire capital base of the banks involved. The paper presents a first effort towards measuring the effects of LDC debt exposure on the market value of large commercial value banks in the United States. Our results indicate that exposure to developing country debt has exerted a measurable and significant negative effect on the ratio of market to book value for these banks.
ISSN:0898-2937
DOI:10.3386/w1470