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The pricing of government-guaranteed bank bonds

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Author Info

  • Aviram Levy

    ()
    (Bank of Italy)

  • Andrea Zaghini

    ()
    (Bank of Italy)

Abstract

We examine the effects of the government guarantee schemes for bank bonds adopted in the aftermath of the Lehman Brothers demise to help banks retain access to wholesale funding. We describe the evolution and the pattern of bond issuance across countries to assess the effect of the schemes. Then we propose an econometric analysis of one striking feature of this new market, namely the significant “tiering” of the spreads paid by banks at issuance, finding that they mainly reflect the characteristics of the guarantor (credit risk, size of rescue measures, timeliness of repayments) and not those of the issuing bank or of the bond itself.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 753.

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Date of creation: Mar 2010
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Handle: RePEc:bdi:wptemi:td_753_10

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Web page: http://www.bancaditalia.it
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Related research

Keywords: banks; corporate bonds; financial crisis; government guarantees;

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Cited by:
  1. Panetta, Fabio & Correa, Ricardo & Davies, Michael & Di Cesare, Antonio & Marques, José-Manuel & Nadal de Simone, Francisco & Signoretti, Federico & Vespro, Cristina & Vildo, Siret & Wieland, Martin , 2011. "The impact of sovereign credit risk on bank funding conditions," MPRA Paper 32581, University Library of Munich, Germany.
  2. Merwan Engineer & Paul Schure & Mark Gillis, 2012. "A Positive Analysis of Deposit Insurance Provision: Regulatory Competition Among European Union Countries," Working Paper Series 29_12, The Rimini Centre for Economic Analysis.
  3. Scott E. Page, 2012. "A complexity perspective on institutional design," Politics, Philosophy & Economics, , vol. 11(1), pages 5-25, February.
  4. 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.

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