Government Guarantees and the Valuation of American Banks

Andrew Atkeson, Adrien d’Avernas, Andrea L. Eisfeldt and Pierre-Olivier Weill

NBER Macroeconomics Annual, 2019, vol. 33, issue 1, 81 - 145

Abstract: Banks’ ratio of the market value to book value of their equity was close to 1 until the 1990s, then more than doubled during the 1996–2007 period, and fell again to values close to 1 after the 2008 financial crisis. Some economists argue that the drop in banks’ market-to-book ratio since the crisis is due to a loss in bank franchise value or profitability. In this paper we argue that banks’ market-to-book ratio is the sum of two components: franchise value and the value of government guarantees. We empirically decompose the ratio between these two components and find that a large portion of the variation in this ratio over time is due to changes in the value of government guarantees.

Date: 2019
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Chapter: Government Guarantees and the Valuation of American Banks (2018)
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Working Paper: Government Guarantees and the Valuation of American Banks (2018)
Working Paper: Government Guarantees and the Valuation of American Banks (2018)
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