Quantifying Structural Subsidy Values for Systemically Important Financial Institutions

By S. Ali Abbas, Alexander Klemm, Junhyung Park, Sukhmani Bedi. Social Science Research Network, 2012

194 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/664c38b78f63fe6683495f3c5dd16e7e65ce4608

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In Economics and Econometrics

1. Boris Cournéde
2. Oliver Denk
3. F. Venditti
4. Eliana Viviano
5. Emek Basker

In Finance

1. Boris Cournéde
2. Oliver Denk
3. F. Venditti
4. Eliana Viviano

Citations in the corpus

• Questioni di Economia e Finanza (2010, background): “Moreover, given the expected government support enjoyed by SIBs – see for instance Ueda and Weder di Mauro (2012) – the SI evaluation could also help microprudential policy in maintaining a sound competition in financial markets.”
• Finance and economic growth in OECD and G20 countries (2015, methodology): “Standard errors, which are shown in brackets, are clustered at the country-level in the OLS and robust using the Windmeijer (2005) finite-sample correction in the system GMM.”