Page 1

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

SCHICH-The_role_and_costs_of_public_guarantees_for_GIC Mar 2409  

Government guarantees for bank liabilities: Pricing and other issues Presentation prepared for the “Basic Challenges to International Stabil...