Credit Guarantees: The Role in Bank Lending
Chapter 4 in New Perspectives on the Bank-Firm Relationship, 2016, pp 79-125 from Palgrave Macmillan
Abstract By definition, credit guarantees are a tool intended to attenuate the loss arising from a debtor’s default and facilitate a bank’s recovery of the sums loaned. Specifically, credit guarantees cover a share of the default risk of loans by allowing the partial transfer of such risk: in the event of a debtor’s default, the bank recovers the value guaranteed. The recovery of the sum loaned—or of part of it—depends on many factors, among which are (1) the type of protection, (2) the coverage level in relation to the exposure, (3) the timing and conditions of realisation—which are also factors that affect the contract conditions relating to the financial transaction—and above all the price of the loan.
Keywords: Credit Risk; Financial Intermediary; Capital Adequacy; Credit Protection; Convertible Bond (search for similar items in EconPapers)
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