Housing Finance: Deposit Guarantees

A positive public perception regarding the soundness of any depository financial system is crucial to its continued acceptance and beneficial role in an economy. Deposit guarantees serve as a means to boost public confidence in such a system. These guarantees come in different forms, including explicit guarantee programmes that are directly backed by governmental or central banking authorities and those that are often backed by other implicit government guarantees. Maintenance of the public’s confidence in the banking system is important to housing finance, as banking institutions in the form of commercial banks and savings and loan institutions have played a major role as sources of funds for residential mortgages. Diminished interest in depository accounts at institutions due to negative public perceptions regarding the risk of loss could, in the case of financial systems with widespread reliance upon these institutions, lead to a decline in credit available for residential housing.