- The State Guarantee Fund was established by law in 1962. The role of the fund is to prepare, grant and process state guarantees. The fund shall also process government claims that arise because of defaulted loans with state guarantees as well as perform various other duties regarding state gurantees and government on-lending operations. With the Act establishing the National Debt Mangement Agency (NDMA) in 1990 the State Gurantee Fund became a division within that agency.
- In accordance with the law on the NDMA, those borrowers that enjoy state guarantees on their debts or plan to take foreign loans with state guarantees must consult the NDMA on their planned foreign borrowing. By contract between the Ministry of Finance and the Central Bank of Iceland the Central Bank executes this clause in the law in the same manner as it handles the Treasury’s foreign borrowing. The NDMA receives all information on foreign borrowings of state guaranteed borrowers. The same has not applied for domestic borrowing of the same parties. The NDMA has now announced to all parties who have loans with state guarantees or enjoy state guarantees on their liabilities because of state ownership, changes in the collection of information regarding loans with state guarantees. The collection of information will now be standardized and the aim is to collect information systematically from all parties at the end of each quarter. It is expected that by doing this it will be possible to collect standardized information on all loans with state guarantees into one database. This way it will be possible to keep an eye on the development of individual factors and total sums and in addition to do risk analysis on individual loans.
- State guarantees can only be granted if authorized by law. There are two types of guarantees, surety and simple guarantees. Sureties can only be granted if so specified in the laws that authorize them. Guarantees for the borrowing of Government funds, Government firms and Government institutions, i.e. owner’s guarantees, are simple guarantees unless otherwise specified. The difference between sureties and simple guarantees is mainly that a surety allows immediate claims on the guarantor on default. In the case of a simple guarantee, all other means of collection must be exhausted before claims can be made on the guarantor.
- A charge is paid for the state guarantees, a risk charge, effective since 1961 when the first law on state guarantees was passed. They depended on whether the guarantee was a simple one or a surety. Such a charge was not paid for the Treasury’s owner-guarantees, that is to say guarantees for borrowers owned by the Treasury. In 1987 the laws on state guarantees were amended so that banks, credit funds, firms and other parties that enjoy or have enjoyed state guarantees, whether due to Treasury ownership or other factors, were subjected to a charge payable to the Treasury, a so called guarantee charge. This charge was originally only paid for debts toward foreign claimants. With the Act regarding State Guarantees no. 121/1997 the charge requirements were broadened so that the charge should also be paid for domestic debt. This charge is paid quarterly. The State Guarantee fund has always executed the collection of this charge, which accrues to the Treasury.
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