For more than two decades researchers have been debating on the relationship between the number of bank relationships and the cost of borrowing. On one hand, Diamond’s (1984) classical delegated monitoring theory suggests that exclusive lending relationships minimize loan rates by avoiding duplication of monitoring costs. On the other hand, other authors (e.g. Sharpe (1990) and Rajan (1992)) predict that firms can reduce interest rates by borrowing from several banks.

While international empirical studies have so far found mixed results, the ongoing process of deregulation, globalization and consolidation of the banking industry brings more complexity to the picture: it is still unclear how credit market competition affects the impact of bank relationships on interest rates. This study seeks to make progress in answering these two questions: How does the number of banks that a firm borrows from influence the cost of loans? And what is the impact of the credit market competition on the linkage between the number of banks and the cost of borrowing?

The recent Asian financial crisis has rekindled considerable interest in issues related to international reserves. Although numerous studies have attempted to unravel the fundamental rationale for the reserve hoarding behavior – ranging from the transaction demand, precautionary motives, collateral asset argument, and mercantilist behavior, the debate on the determinants of international reserves is far from settled. The difficulty of explicating the reserve holding behavior is consistent with the anecdotal view that the role and functionality of international reserves has evolved along with developments in the global financial markets. Recent financial globalization and tremendous advancement in international capital markets has made reserve holding behavior increasingly susceptible to capital account transactions while recent financial crises have also increased the importance of the role of expectations, policy credibility, and institutional structures.

Each wave of balance of payments crises in the last four decades has brought new insights on the causes and consequences of crises. The recent Asian financial crisis in 1997-98 has revealed several new features that are unseen in the previous crises. The so-called “Third Generation” crisis models have highlighted balance sheet factors and the role of financial sector weaknesses as new determinants of currency crises, that were not explicitly incorporated in the previous two generations of crisis models.