Circumstances affecting the extent to which guarantor support affects federal regulators’ ratings of credit risks are outlined in a bulletin issued Tuesday by the national bank regulator.
The Office of the Comptroller of the Currency (OCC) in Bulletin 2026-56 notes that factors unrelated to the existence of personal or corporate guarantor support can “positively or negatively” affect a credit’s risk rating. “For example, prudent underwriting is a key consideration when assessing the risk within a credit,” the bulletin says.
The bulletin outlines types of guarantees (it does not focus on U.S. government guarantees) that can affect the extent of credit risk that is mitigated by guarantor support, for example:
- Contingent or conditional guarantees require a specific event to occur or certain conditions to be met before the guarantor is liable.
- Continuing guarantees, or open guarantees, extend liability for an obligor’s present and future debts.
- Collection guarantees extend liability only after default and are conditioned on the creditor first exhausting legal remedies against the obligor.
- Payment guarantees extend liability based on the debt’s contractual terms. The bank does not have to first seek the primary obligor’s performance. This type of guarantee mitigates default risk.
- Irrevocable guarantees cannot be terminated without the consent of the other parties.
- Revocable guarantees can be terminated by the guarantor without any other party’s consent.
- Declining guarantees reduce the guarantor’s liability as certain conditions are met (e.g., the guarantor’s liability declines based on a project’s construction progress).
It says key considerations when assessing the extent of credit risk mitigation provided by different types of guarantees include the following:
- Whether the guarantee mitigates risk of default or risk of loss. Guarantees that mitigate risk of default generally provide stronger risk mitigation.
- Whether the guarantee is irrevocable. Guarantees that are revocable by the guarantor without the bank’s consent generally do not provide risk mitigation.
- Whether the guarantee is unconditional. Conditional guarantees generally provide less risk mitigation than unconditional guarantees. For conditional guarantees, examiners should assess the effect the guarantee would likely have on the credit once the conditions are met.
- The amount of the guarantee. Guarantees that are limited in amount generally only provide risk mitigation up to the amount of the guarantee.
“For example, an unconditional, irrevocable payment guarantee would generally be the strongest guarantee because it mitigates risk of default, is not conditioned on certain events, and cannot be unilaterally revoked by the guarantor,” the bulletin states.
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