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 Artikel |
| Sprache: | English |
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OECD Publishing
2010
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| 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 p.) 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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| 700 | 1 | |a Schich, Sebastian |e MitwirkendeR |4 ctb | |
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| spelling | Levy, Aviram VerfasserIn 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 p.) 19 x 27cm. Text txt rdacontent Computermedien c rdamedia Online-Ressource 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 MitwirkendeR ctb Enthalten in OECD Journal: Financial Market Trends Vol. 2010, no. 1, p. 35-66 volume:2010 year:2010 number:1 pages:35-66 FWS01 ZDB-13-SOC FWS_PDA_SOC https://doi.org/10.1787/fmt-2010-5km7k9tp8t40 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_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 | 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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