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Government Risk-Bearing in the Financial Sector of a Capitalist Economy

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Government Risk-Bearing

Abstract

For many years, the potential costs of government risk-bearing attracted scant attention. The recent wave of depository institution failures has caused widespread concern about the government’s ability to regulate these entities and, more broadly, to control the financial risks it assumes. In the United States, these risks include

  1. 1.

    a federal safety net for depository institutions, comprising statutory deposit insurance and (occasionally subsidized) discount window lending;

  2. 2.

    government guarantees of private obligations, including pensions, brokerage accounts, and the “government-sponsored enterprises”1;

  3. 3.

    direct government lending to (among others) homeowners, farmers, small businesses, and students; and

  4. 4.

    extensive Federal Reserve payments services to private banks, which sometimes include extensions of substantial intraday credit.

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Notes

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  11.     Guaranteed investment contracts (GICs) are a good example of this latter development. See Rule 151 under the Securities Act of 1933, 17 C.F.R. §230.151 (1991).

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  12. For a description of the CM A program, see Krinsk v. Merrill Lynch Asset Management, Inc., 875 F. 2d 404 (2d Cir.), cert. denied, 493 U.S. 919 (1989).

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Authors
  1. Mark J. Flannery
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  2. Howell E. Jackson
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Mark S. Sniderman

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Flannery, M.J., Jackson, H.E. (1993). Government Risk-Bearing in the Financial Sector of a Capitalist Economy. In: Sniderman, M.S. (eds) Government Risk-Bearing. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-2184-2_4

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  • DOI: https://doi.org/10.1007/978-94-011-2184-2_4

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