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Blanket Guarantees Survey

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Abstract

This paper surveys 10 blanket guarantee (BG) programs across 13 Key Design Decisions. The defining characteristics of these programs in terms of their inclusion in our BG series are (a) that they guaranteed a broader range of liabilities beyond deposit accounts and (b) that the guarantees covered existing liabilities in addition to newly issued ones. Each case represents an effort to eliminate creditors' incentive to withdraw funding from institutions by guaranteeing that the funding will be paid back even if the institutions are unable to do so themselves. The main themes that emerge are: (a) the inability of blanket guarantees to address underlying problems without complementary liquidity support and restructuring measures; (b) the importance of credibility, particularly as related to the amount of liabilities guaranteed relative to fiscal resources; (c) the need to address the moral hazards that a blanket guarantee creates, by restricting banks' behavior during the acute phase of a crisis--for example, through interest-rate caps or bans on aggressive marketing--and by promising to increase official supervisory oversight as the crisis extends into its chronic phase; (d) the importance of effective communication; and (e) the importance of clear political support for a program that represents potentially substantial fiscal costs, which authorities may be unable to quantify at the time of the announcement.

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  • Metrick, Andrew, 2022. "Blanket Guarantees Survey," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 4(4), pages 103-132, April.
    • Handle: RePEc:ysm:ypfsfc:v:4:y:2022:i:4:p:103-132
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    1. Mr. Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises: Pitfalls in Financial Liberalization?," IMF Working Papers 1995/061, International Monetary Fund.
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    3. Metrick, Andrew, 2020. "Bank Debt Guarantee Programs," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 2(3), pages 71-100, April.
    4. √Íscar Jord√Ä & Moritz Schularick & Alan M. Taylor, 2013. "When Credit Bites Back," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 3-28, December.
    5. Kane, Edward J. & Klingebiel, Daniela, 2004. "Alternatives to blanket guarantees for containing a systemic crisis," Journal of Financial Stability, Elsevier, vol. 1(1), pages 31-63, September.
    6. Paul Beckerman & Andres Solimano, 2002. "Crisis and Dollarization in Ecuador : Stability, Growth, and Social Equity," World Bank Publications - Books, The World Bank Group, number 14256.
    7. Metrick, Andrew, 2022. "Account Guarantee Survey," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 4(2), pages 40-85, April.
    8. International Monetary Fund, 2000. "Ecuador: Selected Issues and Statistical Annex," IMF Staff Country Reports 2000/125, International Monetary Fund.
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    Cited by:

    1. Wiggins, Rosalind & Hoffner, Benjamin & Feldberg, Greg & Metrick, Andrew, 2023. "Central Bank Foreign Currency Swaps and Repo Facilities Survey," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 5(1), pages 25-111, July.

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    More about this item

    Keywords

    blanket guarantee; deposit insurance;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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