Contesting the preferred creditor status of the League of Nations, 1931–3

This article analyses the defaults of the League loans, which were private loans promoted by the League of Nations to support governments in central and eastern Europe in the 1920s. Previous works have argued that governments refused to grant these loans preferred status. However, this article shows that at the onset of the crisis, investors and governments treated these loans differently. It provides an empirical analysis to test whether there was a common element in the pricing of these loans and whether they enjoyed seniority compared to other, non-League loans. The findings show that there was a common factor driving the bond prices of these loans at the onset of the 1931 banking crisis. This article demonstrates that while these loans were not legally senior, certain governments granted the League loans de facto preferred status under the assumption that averting default would foster renewed support from the League. Archival evidence is provided to show that governments ceased to grant the League loans exceptional treatment when the expected support from the League did not materialize, which further weakened the ability of the League to secure emergency lending.