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

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 corporati... Mehr ...

Verfasser: Veenstra, Jacob
van Ommeren, Bernard
Dokumenttyp: Artikel
Erscheinungsdatum: 2017
Reihe/Periodikum: Veenstra , J & van Ommeren , B 2017 , ' Bailout Clauses and the Price of Credit : The Dutch Experience for Housing Corporations ' , Economist-Netherlands , vol. 165 , no. 3 , pp. 295-320 . https://doi.org/10.1007/s10645-017-9299-2
Schlagwörter: Bailout / Guarantees / Housing corporations / Interest spreads / Bank loans / YIELD SPREADS / CANADA
Sprache: Englisch
Permalink: https://search.fid-benelux.de/Record/base-29028763
Datenquelle: BASE; Originalkatalog
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Link(s) : https://hdl.handle.net/11370/be7a1b68-4d69-4739-9ac1-1aea0034f4c1

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.