U.S. Regulation of Bank Lending to LDCs: Balancing Bank Overexposure and Credit Undersupply

Abstract

The relationship that now exists between commercial banks and less developed countries (LDCs) threatens the stability of the international financial and U.S. banking systems. Many LDCs are experiencing severe problems in servicing their massive debts to the commercial banks, while at the same time the number of banks willing to continue lending to these LDCs and the amount of new credit these banks are willing to extend both are decreasing. In a rare display of unanimity, private and central bankers, government officials from LDCs and developed countries (DCs), multilateral financial institutions, and even the mass media have acknowledged the dangers presented by these mutually reinforcing phenomena. Responsibility for the gravity of the present situation has been attributed to selfish aims on the part of DCs, mismanagement by LDCs, and imprudence on the part of banks. Assigning blame, however, is useful only insofar as it helps avert future crises; the important task today is "to prevent a bad situation from becoming a global disaster."