The Rise Of Financial Guarantees

From the second half of the 1990s onwards, credit derivatives and insurance products have been commonly used by market participants to manage and transfer credit risk associated with financial instruments such as structured finance and traditional debt instruments including loans and bonds. Credit derivatives have been popular but their unregulated nature has been blamed for playing a role in the bankruptcy filing of Lehman Brothers, the federal rescue of American International Group as well as the downturn of the stock markets during the global financial crisis. While there may be uncertainty in the future of credit derivatives due to regulation and standardization, financial institutions have been creating alternative financial instruments to manage and transfer their credit risk, and financial guarantees are one of the hot topics in the current market.