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Credit Guarantees: The Role in Bank Lending

In: New Perspectives on the Bank-Firm Relationship

Author

Listed:
  • Paola Ferretti

    (Universita di Pisa)

Abstract

By definition, credit guarantees are a tool intended to attenuate the loss arising from a debtor’s default and facilitate a bank’s recovery of the sums loaned. Specifically, credit guarantees cover a share of the default risk of loans by allowing the partial transfer of such risk: in the event of a debtor’s default, the bank recovers the value guaranteed. The recovery of the sum loaned—or of part of it—depends on many factors, among which are (1) the type of protection, (2) the coverage level in relation to the exposure, (3) the timing and conditions of realisation—which are also factors that affect the contract conditions relating to the financial transaction—and above all the price of the loan.

Suggested Citation

  • Paola Ferretti, 2016. "Credit Guarantees: The Role in Bank Lending," Palgrave Macmillan Studies in Banking and Financial Institutions, in: New Perspectives on the Bank-Firm Relationship, chapter 4, pages 79-125, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-319-40331-1_4
    DOI: 10.1007/978-3-319-40331-1_4
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