Introduction

Abstract

Guarantees, whether implicit or explicit, are a widespread component of financial contracts and provide the conceptual framework for credit risk analysis. Foremost among explicit private guarantees are guarantees of the debt obligations of subsidiaries from parent corporations; letter-of-credit guarantees provide by commercial banks; swap guarantees; mortgage guarantees; and insurance contracts of all sorts. Public guarantees are ubiquitous. Government guarantees of loans made to private corporations have made headlines on each side of the Atlantic. Indeed, government-issued small business guarantees as well as export-oriented and industry-targeted guarantees represent current government practices for financing economic activity. Even more important may be the role of guarantees of deposits through the Federal Deposit Insurance Corporation (FDIC), and less extensive, but similar, guarantees of pension benefits, student loans, residential mortgages, etc.