(Solved): Suppose the UK government promises to partially guarantee the debt of a large UK bank. That is, it p ...

Suppose the UK government promises to partially guarantee the debt of a large UK bank. That is, it promises that if the bank can’t pay back its debtholders, the government will pay each debtholder 90% of what they’re owed. How would this affect the bank’s financing decisions, its investment decisions, and its likelihood of default? How will this depend on how credible investors 1 believe the UK government to be? Explain your answers clearly and concisely