Bailout Clauses and the Price of Credit: The Dutch Experience for Housing Corporations

Jacob Veenstra () and Bernard Ommeren ()
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Jacob Veenstra: University of Groningen
Bernard Ommeren: BNG Bank

De Economist, 2017, vol. 165, issue 3, No 3, 295-320

Abstract: Abstract The bulk of capital provided to Dutch housing corporations is explicitly guaranteed by a bailout clause. Using a dataset with loans provided by the largest Dutch public sector bank (BNG Bank), we find substantial evidence that this bailout clause has reduced interest rates by about 72 basis points. The annual benefits of reduced interest costs outweigh the costs of default. We also find that the interest rates for guaranteed loans are insensitive to the financial position of corporations. We therefore surmise that the bank relied on the bailout clause. Finally, the bailout clause for corporations (which guarantees individual loans) and the one for municipalities (which entirely protects municipalities from defaulting) lead to a similar reduction in interest.

Keywords: Bailout; Guarantees; Housing corporations; Interest spreads; Bank loans (search for similar items in EconPapers)
JEL-codes: E43 G21 H81 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10645-017-9299-2

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