Full Faith And Credit

A A A

DEFINITION

A phrase used to describe the unconditional guarantee or commitment by one entity to back the interest and principal of another entity's debt. This full faith and credit commitment is typically employed by a government to help lower the borrowing costs of a smaller, less stable government or a government-sponsored agency. When this occurs, the smaller government or agency takes on the backer's credit quality.

INVESTOPEDIA EXPLAINS

The Government National Mortgage Association (Ginnie Mae) is one example of a government agency that is backed by the full faith and credit of the U.S. government. It is generally accepted that the U.S. government will never default on its loan obligations. The full faith and credit of the U.S. government essentially confers risk-free status to securities such as U.S. Treasuries. Similarly, securities backed by Ginnie Mae mortgages have lower yields than other mortgage-backed securities because they are assumed to carry less risk.



RELATED TERMS
  1. Private Buyer

    An individual or organization that is purchasing an asset and whose actions ...
  2. Federal Agencies

    Special government organizations set up for a specific purpose such as the management ...
  3. Ginnie Mae - Government National ...

    A U.S. government corporation within the U.S. Department of Housing and Urban ...
  4. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage or collection ...
  5. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of ...
  6. Pass-Through Security

    A pool of fixed-income securities backed by a package of assets. A servicing ...
  7. Risk-Free Return

    The theoretical rate of return attributed to an investment with zero risk. The ...
  8. Treasury Direct

    The online market where investors can purchase federal government securities ...
  9. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default beginning in ...
  10. Event Risk

    1. The risk due to unforeseen events partaken by or associated with a company. ...
Related Articles
  1. A Look At National Debt And Government ...
    Bonds & Fixed Income

    A Look At National Debt And Government ...

  2. How Interest Rates Affect The Stock ...
    Investing Basics

    How Interest Rates Affect The Stock ...

  3. Basics Of Federal Bond Issues
    Bonds & Fixed Income

    Basics Of Federal Bond Issues

  4. The Advantages Of Bonds
    Investing

    The Advantages Of Bonds

  5. What Investors Should Know About Interest ...
    Investing Basics

    What Investors Should Know About Interest ...

  6. The Equity-Risk Premium: More Risk For ...
    Fundamental Analysis

    The Equity-Risk Premium: More Risk For ...

  7. Are long-term U.S. government bonds ...
    Investing

    Are long-term U.S. government bonds ...

  8. Herding Tendencies Among Analysts
    Investing Basics

    Herding Tendencies Among Analysts

  9. Has Stock Bias Affected Your ETF Asset ...
    Bonds & Fixed Income

    Has Stock Bias Affected Your ETF Asset ...

  10. Mortgage Rates To Rise, But When And ...
    Investing Basics

    Mortgage Rates To Rise, But When And ...

comments powered by Disqus
Hot Definitions
  1. XW

    A symbol used to signify that a security is trading ex-warrant. XW is one of many alphabetic qualifiers that act as a shorthand to tell investors key information about a specific security in a stock quote. These qualifiers should not be confused with ticker symbols, some of which, like qualifiers, are just one or two letters.
  2. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  3. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  4. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  5. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  6. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
Trading Center