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

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 corporations (which guarantees individual loans) and the one for municipalities (which entirely protects municipalities from defaulting) lead to a similar reduction in interest. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png De Economist Springer Journals

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

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Publisher
Springer US
Copyright
Copyright © 2017 by The Author(s)
Subject
Economics; Economics, general; Economic Theory/Quantitative Economics/Mathematical Methods; Economic Policy; Microeconomics; Public Finance
ISSN
0013-063X
eISSN
1572-9982
D.O.I.
10.1007/s10645-017-9299-2
Publisher site
See Article on Publisher Site

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