Institutional uncertainty and the maturity of international loans

This paper shows that non-economic uncertainty in foreign countries contributes to a bias toward short-term maturity in international lending. Frequent government changes and weak institutions explain why some countries find it difficult to obtain long-term financing. Debt maturity is also explained by the level of economic and financial development of a country, the composition of loan portfolios in terms of the type of borrowers, and debt restructuring programs, among other variables. The results are obtained using data on international lending by three groups of U.S. banks: large, medium-sized, and small. Small banks shorten the maturity of their international loans in response to uncertainty to a greater extent compared to large banks.