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The potential dark side of government guarantees, introduced to mitigate concerns about financial stability during economic downturns, is that they may create incentives for excessive risk-taking. In a low-interest rate environment, this effect may be even stronger as financial institutions try to "reach for yield". In this paper, we use the 2008 introduction of unlimited deposit insurance for all credit unions in the province of British Columbia, Canada, to examine the effect of government guarantees on financial institutions' earnings uncertainty. We find that the policy change resulted in an economically and statistically significant decrease in earnings uncertainty. In addition, although deposits grew following the policy change, lending did not increase and instead capitalization ratios improved. Overall, our results suggest that the provincial government guarantee boosted depositor confidence and increased the flow of funds to the insured financial institutions. We do not find support for the risk-taking hypothesis but instead show that risk management improved following the policy change. Finally, the effect of the policy change was stronger for smaller, more levered credit unions as well as those with fewer members and smaller market share. [ABSTRACT FROM AUTHOR]

The article focuses on subrogation in Canada and the settlement of subrogated claims in 2014. Topics include subrogation in insurance law, the awarding of damages for an insured loss, and when the right of subrogation can be enforced. Information is provided on the Canadian court case Lord Napier & Ettrick v. Hunter.

The article provides an overview of when surety might be released from her or his obligations under a guarantee after a material variation to the principal lending contract in Canada. It examines the significance and role of guarantees in contemporary commerce and highlights the tenets guarantee obligations. It discusses how sureties are enjoyed traditionally a favoured status at law and what is regarded to constitute a material variation.

We investigate whether cultural differences between professional decision makers affect financial contracts in a large data set of international syndicated bank loans. We find that more culturally distant lead banks offer borrowers smaller loans at a higher interest rate and are more likely to require third-party guarantees.These effects do not disappear following repeated interaction between borrower and lender and are economically sizable: A one-standard-deviation increase in cultural distance, approximately the distance between Canada and the United States or between Japan and South Korea, is associated with a 6.5 basis point higher loan spread; the loan spread increases by about 23 basis points if the bank-firm match involves culturally more distant parties,for example, from Japan and the United States. We also find that cultural differences not only affect the relation between borrower and lender, but also hamper risk sharing between participant banks and culturally distant lead banks. [ABSTRACT FROM AUTHOR]

The criminal justice system is not immune to risks to its own reputation. While the court has always been responsible for making difficult decisions, the institutional climate may have shifted to a state of hyper-awareness and vigilance in trying to insulate the system from risk. If the 'responsibilisation' of the individual, coupled with the rise of risk governance, has created a culture whereby state actors are reluctant to make difficult decisions, then this shift could have important consequences in the context of bail decisions for accused people detained by the police. This article reviews these consequences in the context of a range of empirical observations on the subject of sureties. Using data from 148 days of bail court observation and 4,085 court case appearances in eight different courts in Ontario, Canada, this article presents evidence that courts regularly ignore the intentions of law makers who created 'judicial interim release'. [ABSTRACT FROM AUTHOR]

The article presents several court cases decided under the Companies' Creditors Arrangement (CCAA), which demonstrate how Canadian courts deal with cross-border guarantees and interests of Canadian unsecured creditors. The case involving the entry of InterTAN Canada Ltd. and its parent company, Circuit City, into a debtor in possession (DIP) facility highlighted the importance of coordination between the U.S. and Canadian cross-border proceedings. In the SemCanada Group case, the court determined that the contractual rights of the lenders were stayed.

In many countries, loan guarantee programs are important elements of government policy with respect to small- and medium-sized enterprises (SMEs). If loan guarantee schemes are to be effective, a majority of firms obtaining assistance through such a scheme ought not to be able to obtain financing from existing sources: a property known as incrementality or additionality. This paper describes a new approach to measuring incrementality. This work uses a two-stage process to estimate the incrementality of loans made under the terms of the Canada Small Business Financing (CSBF) program. First, a logistic regression-based model of loan outcomes (essentially a credit-scoring model) is estimated based on a large representative sample of SMEs. The resulting model was consistent with prior expectations and exhibited high levels of goodness-of-fit. The model was then employed to classify a sample of firms that had received loans under the terms of the loan guarantee scheme. Incremental loans ought to be classified as “turndowns” by the model; hence the proportion of loan guarantee recipients that the model classified as turndowns is a direct measure of incrementality. For the CSBF loan guarantee program incrementality was estimated (with 95% confidence) as 74.8±9.0%. [ABSTRACT FROM AUTHOR]

The financial infrastructure of guarantees, insurance and regulation that underpins US housing markets is an important federal policy tool. Historically, housing policy in the US has relied much more heavily on regulating private market actors to achieve public goals, than it has on direct expenditures. But the commonalities between the US and restructured welfare states such as the UK and Canada have become more striking in recent decades. Similar dilemmas face policy makers in many settings: if homeownership is to be the centerpiece of housing policy, how do we ensure it is affordable and sustainable for those once served by a larger social housing sector? If direct expenditures are to be cut back, with what do we replace them? The story of the Clinton administration's efforts to reform the US financial infrastructure illustrates how these dilemmas have been addressed (although obviously not resolved) in a specific instance. [ABSTRACT FROM AUTHOR]