Improving the monitoring of the value of implicit guarantees for bank debt

Sebastian Schich, Michiel Bijlsma and Remco Mocking

OECD Journal: Financial Market Trends, 2014, vol. 2014, issue 1, 7-37

Abstract: The value of implicit guarantees has declined from its peak at the height of the financial crisis, which is consistent with progress made regarding the bank regulatory reform agenda, as one would expect that many of the reform measures imply a more limited value of implicit guarantees for bank debt. Implicit guarantees persist however and their value continues to be significant, estimated here to be equivalent to EUR 50 billion of annual funding costs savings for a sample of more than 100 large European banks. This estimated funding cost advantage is a conservative estimate as it only focuses on one type of debt that can be measured in “real-time”, that is as data on credit ratings, debt issuance and prices of debt become available. In any case, bank debt continues to be considered “special” by market participants and this observation implies that the substantial economic distortions, including distortions to risk-taking incentives and competition, arising from this situation also persist.

Keywords: Bank regulatory reform; bank funding costs; implicit guarantees for bank debt; debt versus equity funding; quantitative policy (search for similar items in EconPapers)
JEL-codes: E43 G12 G21 G28 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://doi.org/10.1787/fmt-2014-5jxzmkgjnt9x (text/html)
Full text available to READ online. PDF download available to OECD iLibrary subscribers.

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:oec:dafkad:5jxzmkgjnt9x

Access Statistics for this article

More articles in OECD Journal: Financial Market Trends from OECD Publishing Contact information at EDIRC.
Bibliographic data for series maintained by ().