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Bailout Clauses and the Price of Credit: The Dutch Experience for Housing Corporations

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  • Jacob Veenstra

    (University of Groningen)

  • Bernard Ommeren

    (BNG Bank)

Abstract

The bulk of capital provided to Dutch housing corporations is explicitly guaranteed by a bailout clause. Using a dataset with loans provided by the largest Dutch public sector bank (BNG Bank), we find substantial evidence that this bailout clause has reduced interest rates by about 72 basis points. The annual benefits of reduced interest costs outweigh the costs of default. We also find that the interest rates for guaranteed loans are insensitive to the financial position of corporations. We therefore surmise that the bank relied on the bailout clause. Finally, the bailout clause for corporations (which guarantees individual loans) and the one for municipalities (which entirely protects municipalities from defaulting) lead to a similar reduction in interest.

Suggested Citation

  • Jacob Veenstra & Bernard Ommeren, 2017. "Bailout Clauses and the Price of Credit: The Dutch Experience for Housing Corporations," De Economist, Springer, vol. 165(3), pages 295-320, September.
    • Handle: RePEc:kap:decono:v:165:y:2017:i:3:d:10.1007_s10645-017-9299-2
    DOI: 10.1007/s10645-017-9299-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Bailout; Guarantees; Housing corporations; Interest spreads; Bank loans;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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