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Guarantee Arrangements for Financial Promises: How Widely Should the Safety Net be Cast?

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  • Sebastian Schich
  • Byoung-Hwan Kim

Abstract

Guarantees have become the preferred instrument to address many financial policy objectives. The incidence of financial sector guarantee arrangements that address specific policy objectives, such as supporting financial stability, protecting consumers and influencing credit allocations, has increased markedly over the past decades and additional schemes are under consideration. This report identifies considerations regarding consistency and affordability that policymakers should take into account before introducing additional guarantee arrangements. One of them is that the safety net cannot be expanded without limits. In fact, as regards the strength of the net of government-supported guarantees for financial promises, the wider that net is cast (without altering its other key parameters), the thinner it becomes.

Suggested Citation

  • Sebastian Schich & Byoung-Hwan Kim, 2011. "Guarantee Arrangements for Financial Promises: How Widely Should the Safety Net be Cast?," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2011(1), pages 201-235.
    • Handle: RePEc:oec:dafkad:5kg55qw0nkf5
    DOI: 10.1787/fmt-2011-5kg55qw0nkf5
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    Cited by:

    1. Debra Bloch & Falilou Fall, 2016. "Government Debt Indicators:Understanding the Data," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-28, February.
    2. International Association of Deposit Insurers, 2015. "Integrated Protection Schemes," IADI Research Papers 15-03, International Association of Deposit Insurers.
    3. Demirgüç-Kunt, Asli & Kane, Edward & Laeven, Luc, 2015. "Deposit insurance around the world: A comprehensive analysis and database," Journal of Financial Stability, Elsevier, vol. 20(C), pages 155-183.
    4. Philipp König & Kartik Anand & Frank Heinemann, 2013. "The ‘Celtic Crisis’: Guarantees, Transparency and Systemic Liquidity Risk," Staff Working Papers 13-31, Bank of Canada.
    5. Hennecke, Peter & Neuberger, Doris & Ulbricht, Dirk, 2017. "The economic and fiscal value of German guarantee banks," Thuenen-Series of Applied Economic Theory 152, University of Rostock, Institute of Economics.
    6. Philipp König & Kartik Anand & Frank Heinemann, 2013. "The ‘Celtic Crisis’: Guarantees, transparency, and systemic liquidity risk," SFB 649 Discussion Papers SFB649DP2013-025, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    7. Peter Hennecke & Doris Neuberger & Dirk Ulbricht, 2019. "The economic and fiscal benefits of guarantee banks in Germany," Small Business Economics, Springer, vol. 53(3), pages 771-794, October.

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