Do bank hierarchies affect the use of guarantees?

We use experimental methods to demonstrate the anti-competitive potential of price matching guarantees in both symmetric and asymmetric cost duopolies. Our findings establish that when costs are symmetric, price-matching guarantees significantly increase market prices. In markets with cost asymmetries, guaranteed prices remain high relative to prices without the use of guarantees, but the overall ability of price guarantees to act as a collusion facilitating device becomes contingent on the relative cost difference. Lesser use of guarantees, combined with lower average prices and slower convergence to the collusive level, suggest that the mere presence of cost asymmetries may curtail collusive behavior.

An experimental examination of competitor-based price matching guarantees

Access to credit in agriculture pursues the important objective of allowing the development of the agricultural sector. In recent years the need for a new paradigm rises. It aims for sustainable finance in agriculture and uses of guarantee instruments in order to mitigate risks, lower costs, and expand the opportunities for access to credit. This article aims to analyze the guarantee instruments available on the Italian financial market in relation to several variables including sector, size, age, and geographical location of the company. From an analysis of the sample of data on the guarantees provided by ISMEA (Italian Service Institute for the Agri-Food Market), emerges the presence of territorial disparities in the use of guarantees, more widespread in northern Italy, and a higher cost of debt for micro-enterprises and for funds dedicated to innovation. Research results are in line with previous research that points out the importance of guarantees to reduce financial risks and increase access to bank financing. The paper contributes to the existing research in this field by analysing the effect of guarantees on the cost of debt and by suggesting an increase in the use of these instruments in some sectors and in some areas of Italy

Guarantees of origin are tradeable energy certificates defined by directives 2009/28/EC and 2018/2001/EU of the European Union. They serve the aim of informing final consumers on energy sources used for their electricity supply. They are also expected to encourage new investments in renewable electricity generation. This paper investigates how the use of guarantees of origin meets these expectations. A literature review, an analysis of related regulations and an evaluation of empirical data shows that there are regulatory failures both at national and the European Union levels. Furthermore, due to a contradiction between certain rules in European Union level regulation, consumers receive unreliable information on their electricity consumption mix. Therefore, although national rules should be improved, the problem of reliability cannot be resolved until the Union level framework is modified. Furthermore, the present framework does not incentivise investments in renewable energy technologies either. Accordingly, recommendations are formulated for policy makers to ensure reliable and sufficient operation of the certificate system.

A World Bank specialist on the effects of contingent liabilities on the fiscal position of transition and emerging-market economies examines the current situation in the Czech Republic, where the deliberate use of guarantees and other forms of off-budget support by the government has led to the accumulation of hidden liabilities. The paper first discusses how to identify, measure, and classify contingent liabilities and then outlines conceptual and measurement issues involved in assessing their impacts. The paper projects potential nearterm claims on budget resources stemming from defaults by borrowers covered by extant state guarantees. Journal of Economic Literature, Classification Numbers: E62, H50, H63. 1 figure, 10 tables, 13 references, appendix.

In order to have a transparent market for renewable electricity in the European Union (EU), it is necessary to track the flow of renewable electricity. With this in mind, the European Commission introduced a concept called 'Guarantee of Origin' in Directive 2001/77/EC. However, the principle of subsidiarity – that policy is made by the lowest competent authority – turned out to be in conflict with the goal of a transparent and competitive market for renewable electricity. The diverging interests of the member states and a crude definition of guarantees of origin in the directive led to diverging implementations of the renewable energy policy in EU. This paper proposes a roadmap for regional coordination of renewable energy policy through the use of guarantees of origin as a standardised tracking mechanism. The roadmap simultaneously uses a top-down and bottom-up approach to improve coordination.

Risk mitigation instruments such as guarantees are attractive options for achieving the United Nations Sustainable Development Goals because they provide a way for multilateral development banks (MDBs) to strategically de-risk investments while crowding in private financial resources. However, despite the potential attractiveness of these instruments and their effectiveness in mobilizing private resources, their use has been relatively limited. According to private estimates, guarantees represent only 5 percent of MDB operations, although they account for 45 percent of total private resource mobilization. This paper considers supply and demand determinants of MDBs’ current guarantee products, addresses the requirements of private sector investors, and identifies ways to close the gaps between private sector needs and the ability of MDBs to scale up risk mitigation mechanisms. The main conclusion from this analysis is that MDBs’ business models impose significant limitations on the further use of guarantees. A possible alternative to overcome these limitations is the creation of specialized entities or off-balance-sheet facilities, learning from the experience of the Multilateral Investment Guarantee Agency.

Based on the seven case studies analysed in this volume, this chapter concludes that national development banks (NDBs) have been successful in many cases in supporting innovation and entrepreneurship, key new sectors like renewable energy, and financial inclusion. They have developed new instruments, such as far greater use of guarantees, equity (including venture capital) and debt funds, and new instruments for financial inclusion. The context in which they operate is key to their success. Active countercyclical policies, low inflation, fairly low real interest rates, a well-functioning financial sector, and competitive exchange rates are crucial. They are also more effective if the country has a clear development strategy, linked to production sector strategies that foster innovative sectors. Under these conditions, the chapter argues that there is great need for a larger scale of NDB activity in Latin America and in developing countries in general.

The article examines the problems of social protection of employees of the National Police of Ukraine. It is argued that the social protection of police officers is one of the types of social protection of the population, which has a certain specific, which is caused by performing their professional activities associated with increased risk and danger. An etymological study of the concept of « social protection » was carried out. Different approaches to defining social protection were analyzed. The concept of social protection in a broad and narrow sense was considered. The Law of Ukraine « On the National Police » declares that a police officer fully enjoys the guarantees of social and legal protection provided for by the mentioned Law and other legislative acts. The Law of Ukraine « On the National Police » uses the term social protection, the meaning of which is broader than the meaning of the term social security. The Law of Ukraine « On the National Police » provides the following guarantees of social protection of a police officer: provision of appropriate conditions for the performance of duties assigned to him; prompt and full payment of financial support and other compensatory payments in accordance with the law and other regulatory legal acts of Ukraine; full use of guarantees of social and legal protection; during the performance of police powers, he uses all types of public transport for free. However, chapter 9 « Social protection of police officers » is devoted to a wider range of social protection guarantees. The guarantees of social protection of police officers were studied, which included: material support, housing support, medical support and professional support.

This paper presents a new database of systemic banking crises for the period 1970-2009. While there are many commonalities between recent and past crises, both in terms of underlying causes and policy responses, there are some important differences in terms of the scale and scope of interventions. Direct fiscal costs to support the financial sector were smaller this time as a consequence of swift policy action and significant indirect support from expansionary monetary and fiscal policy, the widespread use of guarantees on liabilities, and direct purchases of assets. While these policies have reduced the real impact of the current crisis, they have increased the burden of public debt and the size of government contingent liabilities, raising concerns about fiscal sustainability in some countries.

The coronavirus (COVID-19) crisis provides a new context for donors to assess the relevance of guarantees in addressing challenges linked with a sustainable recovery. The paper argues there may be significant scope for more and better use of guarantees to build back better in response to the crisis. The paper also discusses how guarantees can promote more investment particularly in underdeveloped and underserved markets, such as least developed countries (LDCs).

Chapter 26 - Resolution of Banking Crises

Wealthy parents have found an ingenious way to magnify their children’s assets without paying gift tax. Rather than transfer assets to the children directly, a parent may encourage her children (or trusts for the children’s benefit) to borrow funds as needed to make investments. The parent stands behind that debt by making a personal guarantee, assuring the lender of repayment and thereby allowing the children to borrow and invest far more than they otherwise could. The Internal Revenue Service clearly believes that such guarantees should be treated as gifts but has hesitated to press that position or develop a framework for doing so. This Article provides that framework, drawing on analogous corporate tax cases to show the way. For gift tax purposes, when a person guarantees a loan to a related party, the loan would be recharacterized as a loan from the lender to the guarantor, followed by a second loan on the same terms from the guarantor to the ultimate borrower. Each loan would then be tested under existing doctrines to see whether it should be respected as debt. In most cases, the second deemed loan (from the guarantor to the ultimate borrower) would not be respected as debt, because the ultimate borrower lacks the income or resources to justify the extension of credit. As a result, the second deemed loan would be recharacterized as a gift to the ultimate borrower rather than a loan. This framework would severely curtail the use of guarantees to grow dynastic wealth.

Objective: The article aims to demonstrate the potential for reducing the carbon footprint of products through the use of guarantees of origin (GOs) for electricity from renewable energy sources, based on a case study of an energy-intensive company. Research Design & Methods: We employed regulatory source analysis and a case study methodology to evaluate the use of GOs within a company. Findings: The research results demonstrate that GOs can serve to reduce a product’s carbon footprint only for purchased electricity. The study also indicates that we cannot recognise such instruments in the cost of generating electricity produced using conventional fuels. Implications & Recommendations: The study highlights the regulatory and accounting consequences of the use of GOs. Our findings imply the use of a separate allocation method to ensure compliance with ISO 14067 and European Union sustainability reporting standards. Contribution & Value Added: The study contributes to the literature on carbon footprint reduction by combining aspects of renewable energy certification, legal compliance, and corporate sustainability strategy in the Polish context.

This research examines the problems of guaranteeing Mortgage Rights in Islamic Financing. This type of research is normative legal research, examined using a statutory approach, conceptually analyzed qualitatively. The results of the analysis carried out conclude that the validity of the Islamic Banking Contract with the Binding of Mortgage Guarantees based on Surah Al-Baqarah verse 283 shows that material guarantees are permitted. Whereas legally stated in the Fatwa of the Indonesian National Sharia Council number 25/DSN/MUI/III/2002 on al-Rahn which provides an explanation regarding the ijma' of the scholars that al-rahn contracts or debt guarantees are broadly permissible. The use of guarantees in Islamic banking contracts prioritizes the application of the ijtihad method but does not intend to override the original law but is based more on the principle of using the istihsan method. The virtue of the istihsan method is to realize the benefit and avoid the dangers. Mortgage has executive power, this power is equated with a court decision or known as the principle of parate execution, this is what makes the istihsan method more often used. When viewed further, the imposition of mortgage rights on Islamic banking contracts basically should not be equated with the imposition of mortgage rights on conventional banking, both should have different principles. If the installation of the Mortgage is to guarantee mudharib trust, then the Mortgage is declared valid. with the consequence that in the event of a default it is not immediately auctioned off, in other words the principle of parate execution is not necessarily carried out. Then the Mortgage if used as a guarantor for the return of capital of the shahibul maal becomes invalid and null and void by law. These two aspets can determine the validity of the sharia banking contract with the binding of the Mortgage guarantee.