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Measuring too-big-to-fail funding advantages from small banks’ CDS spreads

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  • Michiel Bijlsma

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  • Jasper Lukkezen

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  • Kristina Marinova

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    Abstract

    Large banks derive a funding advantage from being too-big-to-fail, while small banks do not. To estimate the funding advantage we explain the CDS spreads of small banks in six major European countries during the crisis by market fundamentals and bank-specific characteristics. Next, we extrapolate and predict the CDS spreads of large banks. The difference between the predicted and the observed spread is then interpreted as the funding advantage and amounts to 67 basis points for large banks and 121 for GSIFIs.

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    Bibliographic Info

    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 268.

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    Date of creation: Feb 2014
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    Handle: RePEc:cpb:discus:268

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    1. Völz, Manja & Wedow, Michael, 2011. "Market discipline and too-big-to-fail in the CDS market: Does banks' size reduce market discipline?," Journal of Empirical Finance, Elsevier, Elsevier, vol. 18(2), pages 195-210, March.
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