Citation Context

...e bank, and therefore varies across different cases. In our sample, all borrowers are required of monthly payment. 2 The condition under which a guarantor is responsible to cover the loss is predetermined by the contract between the guarantor and the bank. In our sample, failure to make payment in any month would be regarded as “default” by the lending bank. 3 the predetermined portion3. Also, the guarantor has right to take over and liquidate the collateral. If liquidation of collateral can not fully cover the loss, the guarantor is obliged use its own funds to fill the gap4. As suggested by Honohan (2008) and Beck, Klapper and Mendoza (2010), credit guarantee schemes emerge typically for three reasons: because of differential information, as a means of spreading and diversifying risk, or as a regulatory arbitrage. They argue that the third reason, as a regulatory arbitrage, has underpinned the rapid growth in guarantee schemes in China. In this case, the guarantee premium is used to bring the total servicing charge for the loan above a regulated ceiling on lending interest rates and thus closer to a market-determined interest rate. Regulatory arbitrage may have potential to explain the prosper...

Citation Context

...d manages the resolution of the failure of the borrower on its own. Thus, instead to ask for a mortgage or to require the services of an insurer, the lenders rely on a guarantee scheme based on the mutualization of credit risk. The use of mutual guarantees has significantly increased in France since the beginning of the 1990s. A yearly survey of the French banking supervisor shows that more than 51% of outstanding housing loans were secured by a guarantee at end 2013, while only 36% were secured by a mortgage (ACPR, 2014). One can distinguish three reasons why credit guarantee schemes emerge (Honohan, 2010). First, informational advantages of the guarantor over the lender can help overcome information asymmetries and reduce borrowing costs, especially for borrowers considered as opaque or with insufficient track record (small firms, young households...). As underlined by Beck and al. (2010), quoting Ghatak and Guinnane (1999), this is the fundamental reason why cooperative banks emerged in Germany in the 19th century. Second, guarantee schemes can emerge to exploit regulatory arbitrage if the guarantor is not subject to the same regulatory requirements as the lender. And, third, guarantee scheme...

Citation Context

... guarantee programs and the development of small-bond markets: Governmentbacked partial credit guarantee and mutual guarantee programs (similar to microfinance) could support expanded credit to SMEs (=-=Honohan, 2010-=-; Columba, Gambacorta, and Mistrulli, 2010). Italy’s introduction of fiscal incentives for the issuance of minibonds by unlisted firms in 2012 provides an example. •• Tax incentives for banks that exp...

Citation Context

...t can be made under the contingent liability instrument. In the case of loan guarantees, forsexample, most guarantee schemes limit the share of the loan guaranteed by the governmentsto 70–85 percent (=-=Honohan, 2008-=-). For instance, EU state aid rules prohibit the governmentsfrom guaranteeing more than 80 percent of any loan, in Canada the government limits itssguarantees to at most 85 percent, while the United S...