Quantifying Structural Subsidy Values for Systemically Important Financial Institutions
AbstractClaimants to SIFIs receive transfers when governments are forced into bailouts. Ex ante, the bailout expectation lowers daily funding costs. This funding cost differential reflects both the structural level of the government support and the time-varying market valuation for such a support. With large worldwide sample of banks, we estimate the structural subsidy values by exploiting expectations of state support embedded in credit ratings and by using long-run average value of rating bonus. It was already sizable, 60 basis points, as of the end-2007, before the crisis. It increased to 80 basis points by the end-2009.
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Date of creation: 01 May 2012
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- David Paul: Congress Can No Longer Take Wall Street Money and Ignore the Damage It Does
by David Paul in Huffington Post Business on 2013-08-26 06:35:50
- Lev Ratnovski, 2013. "Competition Policy for Modern Banks," IMF Working Papers 13/126, International Monetary Fund.
- Frank Milne, 2012. "Economic Crises: The Impact on Australia and Canada," Working Papers 1296, Queen's University, Department of Economics.
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