Bank Debt Guarantee Programs

Journal of Financial Crises: Vol. 2 : Iss. 3, 71-100. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/26

Yale Program on Financial Stability Working Paper

30 Pages Posted: 26 Oct 2020

See all articles by Christian McNamara

Christian McNamara

Yale University - Yale Program on Financial Stability

Greg Feldberg

Yale University - Yale Program on Financial Stability; Yale School of Management

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

David Tam

Yale University - Yale Program on Financial Stability

Date Written: October 10, 2020

Abstract

One of the hallmarks of the global financial crisis of 2007-09 was the rapid evaporation of the non-deposit, wholesale funding many financial institutions had become increasingly reliant upon in the years leading up to the crisis. In the aftermath of the Lehman Brothers bankruptcy, governments became increasingly concerned about even fundamentally sound institutions’ ability to access necessary funding. In response, beginning in October 2008, authorities across the globe began introducing guarantee programs enabling institutions to issue debt that would be backed by a guarantee from the government in exchange for a guarantee fee. While the specific details of these programs varied (sometimes widely in ways that allow for interesting comparisons), some version of this basic idea was implemented by over twenty countries. The programs saw significant use in the aggregate but were not uniformly utilized. They are generally seen as having achieved their objectives but may also in certain circumstances have had unintended consequences such as market distortions based on flawed fee structures and the crowding out of non-guaranteed debt.

Keywords: credit guarantee, bond guarantee, debt guarantee, short-term debt, medium-term debt, wholesale funding

JEL Classification: G01,G28

Suggested Citation

McNamara, Christian and Feldberg, Greg and Metrick, Andrew and Tam, David, Bank Debt Guarantee Programs (October 10, 2020). Journal of Financial Crises: Vol. 2 : Iss. 3, 71-100. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/26, Yale Program on Financial Stability Working Paper, Available at SSRN: https://ssrn.com/abstract=3717189

Christian McNamara (Contact Author)

Yale University - Yale Program on Financial Stability ( email )

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Greg Feldberg

Yale University - Yale Program on Financial Stability ( email )

165 Whitney Avenue
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Yale School of Management ( email )

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Andrew Metrick

Yale School of Management ( email )

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HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

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Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

David Tam

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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