Perspectives on the Role of Government Risk-Bearing within the Financial Sector

In virtually all industrialized economies, governments assume a major role in risk-bearing. They provide a variety of forms of “social” insurance (retirement annuities and disability, unemployment, and medical insurance), issue credit and credit guarantees, and offer or organize insurance for those engaging in transactions with financial institutions (deposit insurance, pension funds, and guaranty funds for beneficiaries of insurance policies). The magnitude of these risk-bearing activities is enormous: In recent years, government loans and guaranteed loans (for which government bears the risk of default) have account for as much as one-third of all private lending in the United States.