EconPapers    
Economics at your fingertips  
 

Valuing guaranteed bank debt: Role of strength and size of the bank and the guarantor

Sebastian Schich () and Arturo Estrella
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

Abstract: A contingent claims model of the value of sovereign guarantees of bank debt shows that the value decreases with the bank’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 model’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)
Date: 2015
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://journalofeconomics.org/index.php/site/article/view/165/112 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

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 ().

 
Page updated 2019-08-10
Handle: RePEc:lrc:lareco:v:3:y:2015:i:5:p:19-32