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.
|||The Government National Mortgage Association 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.