The Pricing of Bank Debt Guarantees

Stefan Arping

No 09-057/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper led to a publication in 'Economics Letters' , 2010, 108(2), 119-121.

We analyze the optimal pricing of government-sponsored bank debt guarantees within the context of an asset substitution framework. We show that the desirability of fair pricing of guarantees depends on the degree of transparency of the banking sector: in relatively opaque banking systems, fair pricing exacerbates banks' incentive to take excessive risks, whereas the opposite is true in relatively transparent banking systems.

Keywords: Debt Guarantees; Fair Pricing; Financial Stability (search for similar items in EconPapers)
JEL-codes: G21 G38 (search for similar items in EconPapers)
Date: 2009-06-30
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Journal Article: The pricing of bank debt guarantees (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20090057

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