State loan

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State bonds are public bonds issued by a sub - state , state , province, or region .

General

In federal states, the financial sovereignty for their own state finances is often at the level of the federal states, states, provinces or regions that belong to the so-called NUTS 1 level . You can therefore also decide autonomously about borrowing by issuing state bonds. State bonds are public bonds because this level below the state is linked to the state under state law (as a regional authority of the state) and financially through a more or less close-knit financial equalization.

Borrowing Terms and Purpose

The terms and conditions of the state bonds are based on the requirements of the International Capital Market Association (ICMA), such as the interest calculation method . State bonds, like public bonds, have the longest term of all bond types of up to 30 years and are often repaid in one sum at the end of the term .

Land loans serve as government bonds of the financing of investment in construction projects , other investments and infrastructure . Government bonds reduce or fill the gap between lower government revenues and higher government spending if tax increases are to be avoided in whole or in part. Since government revenues are often insufficient, government bonds are also used to offset budget deficits (see primary balance ).

safety

In the case of government bonds, there is generally no state guarantee as security , rather they are unsecured . The creditworthiness of the state bonds is based on the state assets and the tax revenue of the bond debtors. In the US because there is no close-knit financial equalization system is and even the indirect government liability is excluded, which are states forced to pledge their bonds ( english pledge ).

The relevant national financial equalization system is decisive for the security of the debt servicing of national bonds , which also takes into account more or less the indebtedness of the state subdivisions such as in Germany , Austria , Switzerland , Canada or the USA .

Situation in individual states

Germany

The federal states issue a large number of state bonds. Large federal states ( area states ) issue their own state bonds, while smaller federal states and city-states join forces and issue joint jumbo Pfandbriefe and state jumbos . Another mixed form is the federal-state bond , which is not a federal security due to the proportional liability of the debtors .

The federal states are financially closely linked to the federal government through financial equalization , especially state financial equalization . The rating agencies therefore usually give state bonds such as federal securities the top grade AAA , they therefore belong to the good asset class and risk class and can also be acquired by risk-averse investors .

Bonds German federal states / City States as a national regulatory municipality ( English domestic municipality treated). According to the European Banking Authority (EBA), issues of German domestic municipalities are classified as federal securities . For this reason, they are given a risk weight of 0% within Directive 2013/36 / EU (Equity Capital Directive) and are assessed as level 1 assets in the liquidity coverage ratio . The stress factor for the spread risk and the concentration risk under Solvency II is also 0%.

Austria

In Austria , the federal states are allowed to issue state bonds, but they no longer make use of them today. Historical examples were the Lower Austrian Provincial Loan from 1954 and 1956 and the Upper Austrian Provincial Loan from 1955.

Switzerland

In Switzerland , too , the cantons are allowed to issue national bonds, but these days they rarely make use of them. The cantonal banks were the issuers of the cantonal bonds, but from 1915 they were no longer to hold these bonds in their own holdings. Historical examples were the canton bonds Schwyz (1862) and Ticino (1862). Today there are canton bonds from the cantons of Basel-Stadt and Basel-Landschaft .

United States

With few exceptions, state bonds serve ( English State (government) bonds ) to finance the road construction of public buildings (such as schools ), or other infrastructure.

to form

"General obligation bonds" are by non-dedicated ( English unrestricted ) tax revenues covered, so-called "revenue bonds", however, are dedicated ( English restricted ) tax revenues repaid . The purpose of this “restricted” tax revenue is exclusively limited to the repayment of the corresponding “revenue bonds”. These are used to finance power plants for electricity generation , hydropower , sewage disposal or toll structures such as bridges or highways . The more tax revenue for the debt service use the "revenue bonds", the less available for "general obligation bonds" and vice versa are available. On the one hand, the creditor risk can consist in the fact that the sources of income for the “general obligation bonds” have been undermined in favor of the “revenue bonds” to such an extent that no free tax revenue is available for the repayment of the “general obligation bonds”. On the other hand, tax revenues - for example during a recession - can fall so that they are no longer sufficient for repayment.

cover

The cover of the "state bonds" is not a real security ( English covered bonds ), even if it is referred to as such ( English pledge , "Pfändung"). Rather, they are covenants that merely oblige the bond debtor to adhere to certain debt ratios. Both types - but mostly only the “general obligation bonds” - are based on the associated clause that the bond debtor has assumed a repayment obligation and must find a way to fulfill this repayment ( English Full Faith and Credit ; German  “bei voll Faith and Trust ” ). Only monoliners can offer real security for state bonds .

clause

“Faith” and “Credit” have the same meaning ( belief , trust ), so they reinforce each other in context. The clause comes from Article IV § 1 of the US Constitution and was intended, among other things, to ensure that local legal acts are recognized in all states. With regard to “state bonds”, the words “loyalty” mean, which makes this clause used in “general obligation bonds” different from “revenue bond”.

There is no formal domestic counter-liability system that would have to justify or trigger an automatic occurrence by the state level higher than a debtor. The existing financial equalization system is not able - nor is it intended - to mitigate or even prevent spectacular municipal financial crises such as New York City (October 1975), Orange County (December 1994) or Detroit (July 2013). Highly indebted municipalities are subject to a risk of bankruptcy from Chapter 9 of the Bankruptcy Code , which provides for the “municipalities” under a federal state as the norm addressee .

States themselves are not subject to the Chapter 9 , however, the US Bankruptcy Code have largely even for the budgetary compensation worry because grants the state ( english government grants ) have not been provided as a rule. US bankruptcy law does not allow a state to file for bankruptcy, but does allow municipalities to file for bankruptcy. It can be assumed, however, that the creditors of state bonds tacitly assume that the central government would step in if necessary; however, this is doubted in the specialist literature . The no-bailout clause , which is still in force today, dates back to 1842, when over-indebted states unsuccessfully asked the central government for financial help, but it did not intervene. As a result, 12 states became insolvent.

Canada

Provincial bonds are very popular in Canada , where the provinces of Alberta , Manitoba , Ontario and Quebec are among the issuers. It must be remembered that an issuer risk, because in the Canadian provinces of default ( English default ) is possible as the example of Alberta has shown in the 1935th

Argentina

In Argentina , the province of Buenos Aires is a regular issuer.

Bond insurer

The uncovered national bonds with a latent default risk (as in the USA and Canada) can be covered by a default guarantee from bond insurers . However, it should be remembered that bond insurers represent an independent risk of default and can become insolvent.

Individual evidence

  1. NUTS ( French Nomenclature des unités territoriales statistiques ), "Classification of territorial units for statistics"
  2. Hans E. Büschgen, Das kleine Börsen-Lexikon , 2012, p. 63
  3. Carl Hudeczek, paths and objectives of economic Austria , 1958, p 159
  4. Hans Karl Seitz, Swiss bond policy in the federal government, cantons and municipalities , 1915, p. 135
  5. H. Scherer / K. Wagner (Ed.), Frankfurter Allgemeine Verlosungsanzeiger , 1874, p. 33
  6. ^ The Bond Market Association (ed.) / Judy Wesalo Temel, The Fundamentals of Municipal Bonds , 2001, p. 3
  7. ^ The Bond Market Association (ed.) / Judy Wesalo Temel, The Fundamentals of Municipal Bonds , 2001, p. 5
  8. ^ The Bond Market Association (ed.) / Judy Wesalo Temel, The Fundamentals of Municipal Bonds , 2001, p. 33
  9. US Senate / United States (ed.), The Constitution of the United States of America , 2008, pp. 45 f.
  10. ^ Seward vs. Bowers, 37 NM 385, 391 (1933)
  11. David Mellinkoff, The Language of the Law , 1963, pp 348
  12. Book 11 ( English Title 11 ) of the United States Code
  13. Jonathan Rodden, Hamilton's Paradox: The Promise and Peril of Fiscal Federalism , New York, 2006, p. 10
  14. NordLB (ed.), Canadian Provinces & Territories: Fixed Income Research , February 2017, p. 3