Full faith and credit

From ACT Wiki
Jump to navigationJump to search

Credit risk - United States - governmental entities - federal government.

In the context of credit risk, full faith and credit means an unconditional guarantee - or a direct obligation - without any explicit security over assets.

Most commonly, full faith and credit refers to the US federal government's direct financial obligations, or its guarantees.

It is generally considered that securities backed by the full faith and credit of the US federal government are the very lowest credit risk securities in the US market, because of the tax-raising powers of the federal government, to obtain future funding to enable it to settle its obligations.

Full faith and credit backing by other entities, for example local governments, carry relatively less weight, and the related securities are accordingly considered relatively higher-risk.

See also