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Quantifying Structural Subsidy Values for Systemically Important Financial Institutions

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  • Mr. Kenichi Ueda
  • Beatrice Weder di Mauro

Abstract

Claimants 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.

Suggested Citation

  • Mr. Kenichi Ueda & Beatrice Weder di Mauro, 2012. "Quantifying Structural Subsidy Values for Systemically Important Financial Institutions," IMF Working Papers 2012/128, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/128
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    References listed on IDEAS

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    More about this item

    Keywords

    WP; government support; government; support rating; Systemically important financial institutions; bank funding subsidy; bank bailout; rescue program; cost advantage; support component; support increase; Credit ratings; Bonuses; Financial statements; Europe;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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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