RFAs’ Financial Structures and Lending Capacities: A Statutory, Accounting and Credit Rating Perspective

Abstract

This paper documents the diverse financial structures – including capital structures and funding strategies – of Regional Financing Arrangements (RFAs) and offers an analysis of RFAs’ lending capacity from a statutory, accounting and credit rating perspective. Using credit rating agencies’ methodologies, the paper presents the dynamic relationship between RFAs’ financial structures, the support from their member states and their resulting creditworthiness. A stylized model is developed to demonstrate how the relative size of an institution’s paid-in compared with its callable capital, together with its member states’ support, could have an impact on the overall credit rating and lending capacity of an RFA. This paper contributes to the growing policy discussions on the heterogeneity of RFAs and their rising importance in the Global Financial Safety Net.