Short, Medium or Bust

  • T. H. Donaldson

Abstract

Unsecured medium-term lending is a relatively recent development, and came later to Europe, including Britain, than to the United States. Banks in the United States developed an approach, including covenants and amortisation, to controlling the credit risk that worked well. However, when the Americans introduced the concept to Europe, most European companies and banks failed to understand the logic. Economists in banking, such as Geoffrey Bell, argued that good companies never repay their debt because they can use the funds to better advantage themselves. This was an argument against amortisation which largely ignored the importance of bank liquidity or credit control, both of which are crucial to the need for amortisation. Mr Bell’s arguments, probably unintentionally, came close to saying both that only good companies borrow medium term, and that all good companies remain good for ever.

Keywords

Europe Explosive Expense Lost Stake 

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Copyright information

© T. H. Donaldson, FCIB 1988

Authors and Affiliations

  • T. H. Donaldson
    • 1
  1. 1.FCIBBarbados

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