The Design of Government Guarantees for Bank Bonds: Lessons from the Recent Financial Crisis
In 2010 authorities have taken the first steps to end some of the public support measures put in place in response to the financial crisis, starting with government guarantees for bond issues. Financial institutions have made extensive use of this tool, which has been effective in avoiding a further...
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| Format: | Elektronisch Buchkapitel |
| Sprache: | English |
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Paris
OECD Publishing
2010
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| Schlagworte: | |
| Online-Zugang: | DE-384 DE-473 DE-824 DE-29 DE-739 DE-355 DE-20 DE-1028 DE-1049 DE-521 DE-861 DE-898 DE-92 DE-91 DE-573 DE-19 Volltext |
| Zusammenfassung: | In 2010 authorities have taken the first steps to end some of the public support measures put in place in response to the financial crisis, starting with government guarantees for bond issues. Financial institutions have made extensive use of this tool, which has been effective in avoiding a further tightening of funding conditions, but this type of public support has, nonetheless, raised some concerns. First, the cost of issuing guaranteed bonds has mainly reflected the characteristics of the sovereign guarantor rather than those of the issuer, thus favouring "weak" borrowers with a "strong" sovereign backing. This situation has the potential to distort competition and create incentives for excessive risk taking. Such effects could have been reduced by the choice of a different fee determination mechanism. Second, the continued availability in 2010 of guarantee schemes, despite a declining overall usage, may be alleviating the pressure on some weak financial institutions to address their weaknesses: the average creditworthiness of banks issuing after mid-2009, when market conditions became more favourable, has sharply declined. JEL Classification: G01, G12, G21, G28. Keywords: financial crisis, policy response to the crisis, government guaranteed bonds, competitive distortions |
| Beschreibung: | 1 Online-Ressource (32 Seiten) 19 x 27cm |
| DOI: | 10.1787/fmt-2010-5km7k9tp8t40 |
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| 520 | |a In 2010 authorities have taken the first steps to end some of the public support measures put in place in response to the financial crisis, starting with government guarantees for bond issues. Financial institutions have made extensive use of this tool, which has been effective in avoiding a further tightening of funding conditions, but this type of public support has, nonetheless, raised some concerns. First, the cost of issuing guaranteed bonds has mainly reflected the characteristics of the sovereign guarantor rather than those of the issuer, thus favouring "weak" borrowers with a "strong" sovereign backing. This situation has the potential to distort competition and create incentives for excessive risk taking. Such effects could have been reduced by the choice of a different fee determination mechanism. Second, the continued availability in 2010 of guarantee schemes, despite a declining overall usage, may be alleviating the pressure on some weak financial institutions to address their weaknesses: the average creditworthiness of banks issuing after mid-2009, when market conditions became more favourable, has sharply declined. JEL Classification: G01, G12, G21, G28. Keywords: financial crisis, policy response to the crisis, government guaranteed bonds, competitive distortions | ||
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| spelling | Levy, Aviram Verfasser aut The Design of Government Guarantees for Bank Bonds Lessons from the Recent Financial Crisis Aviram Levy and Sebastian Schich Paris OECD Publishing 2010 1 Online-Ressource (32 Seiten) 19 x 27cm txt rdacontent c rdamedia cr rdacarrier In 2010 authorities have taken the first steps to end some of the public support measures put in place in response to the financial crisis, starting with government guarantees for bond issues. Financial institutions have made extensive use of this tool, which has been effective in avoiding a further tightening of funding conditions, but this type of public support has, nonetheless, raised some concerns. First, the cost of issuing guaranteed bonds has mainly reflected the characteristics of the sovereign guarantor rather than those of the issuer, thus favouring "weak" borrowers with a "strong" sovereign backing. This situation has the potential to distort competition and create incentives for excessive risk taking. Such effects could have been reduced by the choice of a different fee determination mechanism. Second, the continued availability in 2010 of guarantee schemes, despite a declining overall usage, may be alleviating the pressure on some weak financial institutions to address their weaknesses: the average creditworthiness of banks issuing after mid-2009, when market conditions became more favourable, has sharply declined. JEL Classification: G01, G12, G21, G28. Keywords: financial crisis, policy response to the crisis, government guaranteed bonds, competitive distortions Finance and Investment Schich, Sebastian ctb https://doi.org/10.1787/fmt-2010-5km7k9tp8t40 Verlag URL des Erstveröffentlichers Volltext |
| spellingShingle | Levy, Aviram The Design of Government Guarantees for Bank Bonds Lessons from the Recent Financial Crisis Finance and Investment |
| title | The Design of Government Guarantees for Bank Bonds Lessons from the Recent Financial Crisis |
| title_auth | The Design of Government Guarantees for Bank Bonds Lessons from the Recent Financial Crisis |
| title_exact_search | The Design of Government Guarantees for Bank Bonds Lessons from the Recent Financial Crisis |
| title_exact_search_txtP | The Design of Government Guarantees for Bank Bonds Lessons from the Recent Financial Crisis |
| title_full | The Design of Government Guarantees for Bank Bonds Lessons from the Recent Financial Crisis Aviram Levy and Sebastian Schich |
| title_fullStr | The Design of Government Guarantees for Bank Bonds Lessons from the Recent Financial Crisis Aviram Levy and Sebastian Schich |
| title_full_unstemmed | The Design of Government Guarantees for Bank Bonds Lessons from the Recent Financial Crisis Aviram Levy and Sebastian Schich |
| title_short | The Design of Government Guarantees for Bank Bonds |
| title_sort | the design of government guarantees for bank bonds lessons from the recent financial crisis |
| title_sub | Lessons from the Recent Financial Crisis |
| topic | Finance and Investment |
| topic_facet | Finance and Investment |
| url | https://doi.org/10.1787/fmt-2010-5km7k9tp8t40 |
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