 Quantifying and explaining implicit public guarantees for European banksOana Toader () International Review of Financial Analysis, 2015, vol. 41, issue C, 136-147 Abstract: This study provides estimation of public implicit guarantees over the period 1997 to 2012 using a rating-based model. The analysis focuses on a sample of 56 large listed European banks. It appears that the main element for determining the value of the public subsidy is the intrinsic strength of the bank. In addition, we bring evidence on the importance of the guarantor strength on the value of the implicit guarantee: a higher sovereign rating of a bank's home country leads to larger implicit subsidies for banks' debt. Our findings also suggest that the recently observed decrease in the value of implicit subsidies goes beyond the declining in European sovereigns' strength. Rather, it is consistent with the implementation of resolution regimes and practices moving from a “bailout” resolution policy to “bail-in” recapitalization. Resolution schemes providing more explicit rules to treat banks' bankruptcies will reduce investors' expectations of public support. Keywords: Implicit subsidy; Ratings; Sovereign; Resolution mechanism; Bail-in (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:41:y:2015:i:c:p:136-147 DOI: 10.1016/j.irfa.2015.06.003 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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