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

Author

Listed:
  • Michiel Bijlsma

    () (CPB Netherlands Bureau for Economic Policy Analysis)

  • Jasper Lukkezen

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Kristina Marinova

    (CPB Netherlands Bureau for Economic Policy Analysis)

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.

Suggested Citation

  • Michiel Bijlsma & Jasper Lukkezen & Kristina Marinova, 2014. "Measuring too-big-to-fail funding advantages from small banks’ CDS spreads," CPB Discussion Paper 268, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:268
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    File URL: http://www.cpb.nl/sites/default/files/publicaties/download/cpb-discussion-paper-268-measuring-too-big-fail-funding-advantages-form-small-banks-cds-spreads.pdf
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    References listed on IDEAS

    as
    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, vol. 18(2), pages 195-210, March.
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    Cited by:

    1. repec:eee:quaeco:v:66:y:2017:i:c:p:302-313 is not listed on IDEAS
    2. Jean-Loup SOULA, 2015. "Measuring heterogeneity in bank liquidity risk: who are the winners and the losers?," Working Papers of LaRGE Research Center 2015-09, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    3. Tijmen Daniels & Shahin Kamalodin, 2016. "The Return on Equity of Large Dutch Banks," DNB Occasional Studies 1405, Netherlands Central Bank, Research Department.
    4. Patricia Palhau Mora, 2018. "The “Too Big to Fail” Subsidy in Canada: Some Estimates," Staff Working Papers 18-9, Bank of Canada.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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