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Public Guarantees on Bank Bonds: Effectiveness and Distortions

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  • Giuseppe Grande
  • Aviram Levy
  • Fabio Panetta
  • Andrea Zaghini

Abstract

The government guarantees on bank bonds adopted in 2008 in many advanced economies to support the banking systems were broadly effective in resuming bank funding and preventing a credit crunch. The guarantees, however, also caused distortions in the cost of bank borrowing. Their reintroduction might help alleviate the current pressures on banks caused by the sovereign debt crisis, but the pricing mechanism should ensure a level playing field. Moreover, given the sharp deterioration in the creditworthiness of sovereign borrowers, it may be envisaged to entrust the provision of the guarantees to a supranational organisation.

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File URL: http://dx.doi.org/10.1787/fmt-2011-5k9cswn0qg6l
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Bibliographic Info

Article provided by OECD Publishing in its journal OECD Journal: Financial Market Trends.

Volume (Year): 2011 (2011)
Issue (Month): 2 ()
Pages: 47-72

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Handle: RePEc:oec:dafkad:5k9cswn0qg6l

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Cited by:
  1. Pianeselli, Daniele & Zaghini, Andrea, 2013. "The cost of firms' debt financing," CFS Working Paper Series 2013/03, Center for Financial Studies (CFS).
  2. Andrea Cardillo & Andre Zaghini, 2012. "The recent trends in long-term bank funding," Questioni di Economia e Finanza (Occasional Papers) 137, Bank of Italy, Economic Research and International Relations Area.
  3. Zaghini, Andrea, 2014. "Bank bonds: Size, systemic relevance and the sovereign," CFS Working Paper Series 454, Center for Financial Studies (CFS).
  4. Daniele Pianeselli & Andrea Zaghini, 2014. "The cost of firms’ debt financing and the global financial crisis," Temi di discussione (Economic working papers) 950, Bank of Italy, Economic Research and International Relations Area.
  5. Paolo Angelini & Giuseppe Grande & Fabio Panetta, 2014. "The negative feedback loop between banks and sovereigns," Questioni di Economia e Finanza (Occasional Papers) 213, Bank of Italy, Economic Research and International Relations Area.
  6. Scott E. Page, 2012. "A complexity perspective on institutional design," Politics, Philosophy & Economics, , vol. 11(1), pages 5-25, February.

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