Coverage issues play a major role in the economy because they affect the stability or security of economic subjects ( private households , companies or the state with its subdivisions such as public administration or state-owned companies ) or economic objects ( claims / liabilities ).
Gold and foreign exchange
Money cover (note cover) is the name given to the various forms of keeping precious metals ( gold , silver ) or foreign currency available to cover the money in circulation . The coverage resulted from the consideration that the central bank issuing the cash shows it as a liability in its balance sheet , which must be covered by corresponding assets . Gold stocks served first as assets, later silver and then foreign exchange. A cover clause was believed to limit the circulation of money and thus achieve greater currency stability . This meant that banknotes could be exchanged for gold at any time ( gold cover ). The United Kingdom began with this gold backing in September 1717 when it set the gold parity at 3.17.10 ½ pounds sterling (3.89 pounds decimal) per troy ounce of gold. In 1809, the currency theory assumed that stability could only be guaranteed with full gold coverage, while the banking theory , which emerged in 1844, considered an adjustment of the money supply to the demand for money necessary.
In Germany , the law of December 1871 established the gold content of the new common currency "Mark" with the Reichsgoldmünze, and the Coin Act of July 1873 applied this currency to all national currencies. The proportional system with third coverage applied, according to which the central bank had to hold a gold supply , the value of which corresponded to a third of the amount of money in circulation (coins and banknotes). The Banking Act of August 1924 provided for a cash cover of 40% (of which at least 75% was gold, the rest was foreign currency), the remaining 60% was covered by bills of exchange .
With the Bretton Woods system of July 1944, the central banks set up gold reserves as well as currency reserves for currencies convertible into gold ( gold currency standard ). The abolition of the absolute gold peg of the US dollar by US President Richard Nixon on August 15, 1971 is considered the date for the final collapse of the Bretton Woods system. Finally, in January 1976, the International Monetary Fund recommended that its members remove all monetary policy roles from gold when the currencies were lifted. Many states still maintain gold reserves, but this is no longer associated with a certain gold cover for the currency.
Venezuela promised in 2018, with the introduction of state " cryptocurrency " Petro , a cash coverage of crude oil to the confidence of market participants to promote the Petro. At this point in time, however, Venezuela's oil was pledged several times for years.
The balance sheet can be interpreted as a coverage calculation because it shows how the equity or debt capital on the liabilities side is covered by corresponding assets on the assets side . It is important for creditors that their claims can be repaid at any time, if necessary by selling the corresponding assets, so that they do not have to suffer any loss of claims . The asset coverage, for example, is available as a business key figure .
All types of bonds ( corporate bonds , bank bonds , mortgage bonds , government bonds , municipal bonds , municipal bonds ) are debt securities for bond holders ( investors ) a credit risk represent. The issuer as debtors of the bonds with weak credit , this specific issuer risk reduce when the bond conditions provides the collateral for a loan ( English covered bonds ) or may not ( English uncovered bonds ). There is also the possibility of subsequent investor hedging through credit default swaps .
Types of collateral
Bonds can be differentiated according to the type and scope of collateral:
- Corporate bonds, bank bonds and government bonds are usually unsecured. Bank bonds may at no time be secured from the assets of the issuing credit institution . However, they can be subject to the - cross-institutional - deposit insurance .
- Pfandbriefe are secured by mortgages on land and rights equivalent to land ( mortgage Pfandbriefe ) or claims against the public sector ( municipal loans : public Pfandbriefe, formerly municipal bonds) and are subject to the strict requirements of the Pfandbrief Act (PfandBG).
- Ship Pfandbriefe and Airplane Pfandbriefe are secured by mortgages on ships or aircraft and represent a special form of Pfandbrief.
- Mortgage bonds are also secured by land , but are not subject to the strict requirements of the Pfandbrief Act.
- Covered bonds are also similar to Pfandbriefe.
- Brady bonds are a special feature of collateralization. These government bonds from emerging countries are collateralized by zero coupon bonds from issuers with a high credit rating.
- Backed securities ( English asset-backed securities , ABS): Here there are the payment claims against a solely for the purpose of the transaction, the asset-security serving SPV ( English special purpose vehicle ). The payment claims are covered by a portfolio of claims ( English assets ).
- Catastrophe Bonds: This special type of bond allows insurance companies to sell the risk of natural disasters in capital markets . Similar to asset-backed securities, a special purpose vehicle is set up that invests its capital in default-risk-free bonds. If the natural disaster does not occur, the investors receive contractual debt service . If, on the other hand, the natural disaster occurs, the damage is paid to the insurance company first .
Government bonds - such as federal bonds - are unsecured bonds because local authorities in Germany are not capable of bankruptcy . This is not the case with foreign government bonds. The often common negative declaration by the issuer is not collateral, but merely obliges the issuer not to provide collateral for future bonds.
In the case of Pfandbriefe that are always secured, the legally required congruence of cover means that the respective total amount of the Pfandbriefe of one class in circulation must be covered by mortgages of at least the same amount at all times, even in the amount of their nominal value ( (2) PfandBG). This is monitored by a trustee ( PfandBG).
The basis of the UK covered bonds is the Regulated Covered Bonds Regulation from 2008.
Unsecured Bonds Risk
In the USA and Canada, on the other hand, municipalities ( English municipalities ) are insolvent in the event of insolvency ( English default ) according to the special regulation of the Chapter 9 United States Bankruptcy Code . Bonds are often there with a bond promise ( English bond pledge provided), but the "pledge" not here as lien can be translated. Rather, they are covenants that merely oblige the bond debtor to adhere to certain debt ratios. Special bond insurers ( English monolines ) offer real security for bonds through default guarantees . In the US, municipal bankruptcies are possible and have occurred, so securing government bonds is a significant issue. However, it should be remembered that bond insurers represent an independent risk of default and are themselves capable of bankruptcy.
In practice, the Argentina crisis and the Greek crisis, with their partial debt relief , also show that unsecured government bonds can pose a high credit risk. Similarly, had the Soviet Union as the legal successor of Czarist Russia refused to use bonds from this period. As a result, the Soviet Union had no creditworthiness for a long time .
Collateralisation and rating
Other coverage cases
In general, payment transactions are also referred to as coverage ( account coverage ) if an issued check , bill of exchange or a direct debit from an account debit has sufficient funds on the current account to be debited . The bank accepting a foreign payment order must provide its correspondent bank - the bank details of the payee - with an equivalent value for the payment . This equivalent is called the acquisition of cover. An import letter of credit can be opened by the importer purchasing the equivalent value ( cover acquisition ); without the acquisition of cover , the bank has a letter of credit. In the stock exchange system , cover transactions are also used to describe short sales in order to be able to fulfill them on the due date .
As "covered deposits" of applicable under deposit guarantee those deposits that are covered by the statutory Deposit Guarantee Scheme and the depositor and the bank , the recoverable amount of coverage of up to € 100,000 not exceed ( para. 5 EinSiG ).
In the insurance sector is of inclusion in cover speaking, if an insurance specific risk through insurance contract hedges ( para. 1 VVG ). Then it must in its balance sheet a provision for future policy form that the commercial law to be applied in value of debt is the insurance due to the obligations assumed under an insurance contract. The security assets built up by the insurance company for this purpose (previously called "cover pool") serve to secure the claims of the policyholders in the event of insolvency . In damage insurance, the sum insured is called the “sum insured ”. A reinsurance policy is that of an employer as policyholder , contributors and individual entitled to a life insurance company direct insurance, with which he is a risk transfer for the performance of its pension plan benefits from the company pension plan of his employee as insured person can achieve.
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- Sumati Varma, International Business , 2012, o. P.
- Verlag Dr. Th. Gabler GmbH, Bank-Lexikon: Concise dictionary for banking and savings, 1978, Sp. 383
- RGBl. 1871, pp. 404-406 of December 4, 1871
- Coin Act and RGBl. 1873, pp. 233-240 of July 9, 1873
- Gerhard Rübel, Fundamentals of monetary foreign trade , 2009, p. 157 ff.
- Venezuela Launches Pre-Sale of Its Controversial Oil-Backed Cryptocurrency ( Memento from February 20, 2018 in the Internet Archive ) (English)
- Lutz Irgel (Ed.), Gabler Handbuch für Kaufbaren , 1999, p. 215
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