Working Paper: CEPR ID: DP7705
Authors: Marc Flandreau; Norbert Gaillard; Ugo Panizza
Abstract: This paper builds a new dataset with detailed information on the universe of foreign government bonds issued in New York in the 1920s and uses these data to describe the behavior of the financial intermediaries which operated in the New York market during the period leading to the interwar debt crisis. The paper starts by showing that concerns over reputation played an important role in intermediaries? underwriting choices. Next, the paper checks whether banks managed to charge abnormal underwriting fees on bonds that would eventually default and finds no evidence of such practice ("banksterism"). The paper concludes by discussing some parallels between the experience of the 1920s and the current debate on the "originate and distribute" model.
Keywords: conflicts of interest; debt crises; reputation
JEL Codes: F34; G14; G15; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| underwriter prestige (G24) | bond default rates (E43) |
| less prestigious houses (R21) | bond default rates (E43) |
| prestigious underwriters (G24) | fees from borrowers (G21) |
| prestige among financial intermediaries (G29) | conflicts of interest (G34) |