Juan H. Flores

The Peaceful Conspiracy: Bond Markets and International Relations During the Pax Britannica

This article provides foundations to Polanyis famed argument that monopoly power in the global capital market served as an instrument of peace during the Pax Britannica (1815–1914). Our perspective is novel—we focus on the role of intermediaries and certification. We show that when information and enforcement are imperfect, there is scope for the endogenous emergence of “prestigious” intermediaries who enjoy a monopoly position and as a result, control government actions. They can implement conditional lending: they subject the distribution of credit to the adoption of peaceful policies. Prestigious intermediaries act that way because of their concern with maintaining an unblemished track record when wars increased risks of default. Our analysis, which brings together insights from different disciplines, provides a significant extension to, and departure from, recent research on how countries accumulate reputational capital.

Hamlet Without the Prince of Denmark: Relationship Banking and Conditionality Lending in the London Market for Foreign Government Debt,1815-1913

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.

Global Financial Brands and the Underwriting of Foreign Government Debt since 1815

This chapter covers the long-term evolution of the primary market for foreign government debt. It discusses the role of financial intermediaries as underwriters and distributors of securities, providers of information, and lending of last resort services since the early nineteenth century, and the evolution of this role. The chapter underscores the role of the prestige of global financial brands in sustaining early foreign debt markets and its weakening in the modern era.

Crying on Lombard Street: fixing sovereign defaults in the 1890s

The wave of sovereign defaults in the 1890s was one of the worst ever remembered in the history of finance. From Argentina in 1890 to Brazil in 1898, countries in Latin America and Southern Europe defaulted on their external debt, inflicting investors with huge losses. However, this was the last cluster of defaults of the gold standard era. At the beginning of the 20th century and until the outbreak of World War I, defaults were less frequent despite the continuous increase in foreign government borrowing. The literature has provided several explanations on this apparent success all relative to improvements introduced in the market. This paper argues that the fall in the number of defaults is more related to a more favorable world macroeconomic environment and to an increased liquidity available in international financial markets than to an abrupt shift in the manner in which defaults were handled. I show that settlements were more correlated with the relative facility to re-access foreign capital markets than to changes in the financial architecture.