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| Identificativo | ModyPatro96, |
| Tipo di record | |
| No |
| Autore/i | Mody A ; Patro D |
| Anno | 1996 |
| Titolo | Methods of Loan Guarantee Valuation and Accounting |
| Paper |
| Pubblicazione ospite (in) |
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| Altre Informazioni | Research Paper, World Bank |
| Keywords separare key1:key2 | |
| Abstract | infrastructure projects or corporations in financial distress. Studies show that guarantees are extremely valuable–the value of a guarantee increases with the risk of the underlying asset or credit, the size of the investment, and the time to maturity. The flip side of a guarantee’s value to a lender is a cost to the Government. Such a cost is not explicit, but is nevertheless real. To the extent, these liabilities have a subsidy component, careful risk sharing, valuation, and accounting mechanisms are important. This paper describes methods of guarantee valuation, reports estimates of guarantee values in different settings, and summarizes methods of guarantee accounting and their implications. While the old method recorded guarantees only when a default occurred, new methods seek to anticipate losses, create reserves, and channel funds
through transparent accounts to ensure that costs of guarantees are evident to decision makers.
We describe the federal U.S. Credit Reform Act of 1990 to illustrate accounting trends.
Partial government guarantees of private financing can be an effective tool for maintaining public-private partnerships. Loan guarantees that cover some or all of the risk of repayment are frequently used by governments to pursue policy objectives–supporting priority
infrastructure projects or corporations in financial distress. Studies show that guarantees are extremely valuable–the value of a guarantee increases with the risk of the underlying asset or credit, the size of the investment, and the time to maturity. The flip side of a guarantee’s value to a lender is a cost to the Government. Such a cost is not explicit, but is nevertheless real. To the extent, these liabilities have a subsidy component, careful risk sharing, valuation, and accounting mechanisms are important. This paper describes methods of guarantee valuation, reports estimates of guarantee values in different settings, and summarizes methods of guarantee accounting and their implications. While the old method recorded guarantees only when a default occurred, new methods seek to anticipate losses, create reserves, and channel funds
through transparent accounts to ensure that costs of guarantees are evident to decision makers.
We describe the federal U.S. Credit Reform Act of 1990 to illustrate accounting trends. |
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