6533b827fe1ef96bd1285d56
RESEARCH PRODUCT
Quantifying Structural Subsidy Values for Systemically Important Financial Institutions
Kenichi UedaBeatrice Weder Di Maurosubject
FinanceEconomics and EconometricsGovernmentEx-antebusiness.industrySubsidySample (statistics)Monetary economicsCredit ratingBasis pointGovernment Policy and Regulation Structure Scope and Performance of Government [Systemically important financial institutions;bank funding subsidy bank bailout probability financial institutions samples financial stability financial sector Financial Institutions and Services]Value (economics)EconomicsGeneral Earth and Planetary SciencesMarket valuebusinessFinanceGeneral Environmental ScienceBailoutdescription
Abstract Claimants to Systemically Important Financial Institutions (SIFIs) would receive transfers when governments are forced into bailouts. Ex ante, this bailout expectation lowers SIFIs’ daily funding costs. The funding cost advantage reflects both the structural level of the government support and the time-varying market valuation for such a support. Based on a large worldwide sample of banks, we estimate the value of the structural subsidy, by exploiting expectations of state support embedded in credit ratings and by applying the long-run average value of the rating bonus. The value of the structural subsidy was already sizable, 60 basis points (bp), as of the end-2007, before the crisis. It increased to 80 bp by the end-2009.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2013-10-01 |