Valuing guaranteed bank debt: Role of strength and size of the bank and the guarantor
Sebastian Schich () and
Additional contact information
Sebastian Schich: Organization for Economic Cooperation and Development (OECD)
Journal of Economic and Financial Studies (JEFS), 2015, vol. 3, issue 5, 19-32
A contingent claims model of the value of sovereign guarantees of bank debt shows that the value decreases with the bankâ€™s own creditworthiness and it increases with that of the sovereign as well as with bank and sovereign size. Using cross-sectional data for 188 large banks world-wide from 2007 to 2013, empirical results are consistent with the modelâ€™s implications, suggesting that the implicit support for a bank is higher when the bank is larger, when the bank is weaker, and when the country in which the bank is headquartered is larger or more creditworthy. While bank-specific factors matter as well as those related to the sovereign of the country where the bank is located, the effect on the value of sovereign guarantees of changes in bank strength dominate those in sovereign strength.
Keywords: Contingent claims analysis; Implicit guarantees; Risky guarantors; Too-big-to-fail. (search for similar items in EconPapers)
JEL-codes: E44 G13 G21 G28 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:lrc:lareco:v:3:y:2015:i:5:p:19-32
Access Statistics for this article
More articles in Journal of Economic and Financial Studies (JEFS) from LAR Center Press
Bibliographic data for series maintained by S Marjan ().