Table of Contents

Financial Crisis Containment and Government Guarantees

Financial Crisis Containment and Government Guarantees

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Financial Crisis Containment and Government Guarantees analyses the international community’s commitment to forging enhanced, well thought-out, mechanisms for containing systemic risks in the context of a highly interconnected global financial framework which incorporates ongoing financial innovation.

Chapter 15: The treatment of contingent liabilities in a sovereign debt restructuring

Lee C. Buchheit and Mitu Gulati

Subjects: economics and finance, financial economics and regulation, money and banking, law - academic, finance and banking law

Extract

The question of how should the contingent liabilities of sovereigns be treated in a general restructuring of the debt of that sovereign has played only a minor role in the sovereign debt restructurings of the last 30 years. Probably the reason is because the aggregate size of such contingent liabilities – in comparison to the overall debt stocks – has in most cases been very small. Slathering government guarantees on third party debts, however, has recently become the tool of choice for many countries in their efforts to quell an incipient panic in their financial markets. Inevitably, some of those sovereigns will need to restructure their own debts one day and this component of their balance sheets, or perhaps better said, their off-balance sheets, will need to be addressed.

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