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Regional and Global Capital FlowsMacroeconomic Causes and Consequences$
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Takatoshi Ito Ito and Anne O. Krueger

Print publication date: 2001

Print ISBN-13: 9780226386768

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226387017.001.0001

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The Impacts of Bank Loans on Economic Development

The Impacts of Bank Loans on Economic Development

An Implication for East Asia from an Equilibrium Contract Theory

Chapter:
(p.117) 4 The Impacts of Bank Loans on Economic Development
Source:
Regional and Global Capital Flows
Author(s):

Shin-ichi Fukuda

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226387017.003.0005

This chapter examines the behavior and role of banks and bank lending in the crisis. It develops a model of asymmetric information, in which borrowers know whether they are creditworthy but lenders cannot distinguish between them until there is some difference in their behavior. The chapter is organized as follows. Section 4.2 shows that middle-term and long-term commercial bank loans are less mobile forms of capital flows. It also shows that a large fraction of external bank debt had been financed by short-term loans not only in the East Asian countries but also in a large number of other countries. Section 4.3 focuses on the role of monitoring in explaining these findings. Section 4.4 explains the basic structure of the theoretical model, and Section 4.5 defines long-term and short-term debt contracts. Section 4.6 investigates the maturity choices by all borrowers and shows that the vulnerable financial structures in developing countries might emerge as a result of efficient monitoring activities by banks. Sections 4.7 and 4.8 discuss how the main results will change when one of the key assumptions in the model is altered. Section 4.9 summarizes the results and their policy implications. Two commentaries are included at the end of the chapter.

Keywords:   Asian financial crises, banks, bank lending, borrowers, lenders, commercial bank loans, debt contracts

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