Government guarantees for bank liabilities: Pricing and other issues Presentation prepared for the “Basic Challenges to International Stability 2009 Global Conference Series • Part II March 24-26, 2009 • Paris, France”.
Sebastian Schich Directorate for Financial and Enterprise Affairs
Accelerating “flight-to-quality” in fall 2008
Overview of policy measures taken by G-20 plus Netherlands and Spain
Source: IMF (March, 2009).
Types of bank liability guarantees include... – ...expanded retail deposit insurance (including unlimited coverage), and – ...government guarantees to support the issuance of new (unsecured) bank bonds.
CMF discussions in spring 2008
“one of the lessons from the run on mortgage lender Northern Rock in the United Kingdom is that deposit insurance systems with low levels of coverage and partial insurance, together with likely delays in repayment, may not be effective in preventing bank runs� (OECD, Financial Market Trends, June 2008)
Source: http://www.oecd.org/dataoecd/32/54/41420525.pdf
Unlimited
1,000,000
Unlimited
Slovak Republic
Source: http://www.oecd.org/dataoecd/36/48/41894959.pdf 121,000 108,000 90,000 83,000 79,000
Mexico Japan France Switzerland Canada
32,000 25,000
Russia
61,000
Sweden
Turkey
64,000
Poland
35,000
64,000
Hungary
Korea
64,000
Finland
64,000
129,000
Spain
Czech Republic
129,000
Portugal
74,000
129,000
United Kingdom
129,000
129,000
Greece
Netherlands
129,000
Belgium
Luxembourg
133,000
Italy
United States
Norway
ea rly December 2008
mid September 2008
Unlimited
Singapore
250,000
Unlimited
Ireland
New Zealand
Unlimited
Iceland
Unlimited
Unlimited
Hong Kong, China
Germany
800,000
Unlimited
544,000
600,000
Denmark
281,000
400,000
Unlimited
200,000
Austria
Australia
0
Increases of deposit insurance limits in fall 2008
Government guaranteed bonds (GGB) meeting with vigorous demand Gross issuance volumes of GGB (in EUR billion)
Regional structure of GGB issuance
80 70
Denmark; 2
GBP
60
33,3
USD
50 40
39,9
30
13,2
20
5,6
10
16,5
0
Austria; 3
Australia; 5
EUR
6 oct.-08
nov.-08
2,2
9
United States; 35
France; 16
6,2 0,9
24,1
15,7 dĂŠc.-08
Germany; 8
38,3
janv.-09
fĂŠvr.-09
Barclays Capital (March 2009).
Ireland; 3 United Kingdom; 14
Netherlands; 5 Sweden; 3 Spain; 4
Portugal; 2
Costs of and levies charged for guarantees Expanded retail deposit coverage
Guarantees for new bank bond issues
Market price referecne available?
No
Available, but need to be adjusted.
Risk-based fees?
Generally not accompanied by higher fees;.
Pricing close to market reference prices.
Distortion of competition?
Most relevant where currency is shared
Programme details differ, including fee setting
Example
Concluding remarks • Retail deposit insurance: Blanket deposit insurance guarantees should be withdrawn as soon as possible. • Government-guaranteed bank bonds: Governments may need to co-ordinate more closely regarding the details of the design of bank bond guarantee programmes