Document Type

Case Study

Case Series

Credit Guarantee Programs

JEL Codes

G01, G28


In 2008, the United States subprime mortgage crisis sparked international financial turmoil, with effects becoming particularly severe after the collapse of Lehman Brothers on September 15. Due to their banks’ dependence on foreign funding, New Zealand’s money market experienced significant friction spilling over from the United States and Europe. Liquidity premiums rose, and interbank lending became increasingly restricted. Although the crisis was not as severe in New Zealand as it was in many other countries, the problems in the money market caused some level of financial strain. To combat the crisis, the Minister of Finance announced on November 1, 2008, that the government would offer a wholesale funding guarantee to investment-grade financial institutions with substantial borrowing and lending in New Zealand. The program was intended to facilitate access to international financial markets for New Zealand financial institutions in a time of risk aversion for international investors. The program was administered as an opt-in system, with eligible banks applying for a guarantee for each security for which they desired the government backing. Participants were charged a fee for the guarantee, with the amount determined by the riskiness of the issuer, the currency of issuance, and the maturity of the loan. A total of five institutions made 24 guaranteed issuances worth $10.3 billion NZD before the issuance window closed on April 30, 2010. There were no defaults, and $290 million NZD was collected from the program.

Date Revised