Risky bank guarantees
Taneli Mï¿½kinen (),
Lucio Sarno () and
Gabriele Zinna ()
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Taneli Mï¿½kinen: Bank of Italy
Authors registered in the RePEc Author Service: Taneli Mäkinen ()
No 1232, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area
Applying standard portfolio-sort techniques to bank asset returns for 15 countries from 2004 to 2018, we uncover a risk premium associated with implicit government guarantees. This risk premium is intimately tied to sovereign risk, suggesting that guaranteed banks, defined as those of particular importance to the national economy, inherit the risk of the guarantor. Indeed, this premium does not exist in safe-haven countries. We rationalize these findings with a model in which implicit government guarantees are risky in the sense that they provide protection that depends on the aggregate state of the economy.
Keywords: banks; sovereign risk; risk premium; government guarantee (search for similar items in EconPapers)
JEL-codes: G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-ore and nep-rmg
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Journal Article: Risky bank guarantees (2020)
Working Paper: Risky Bank Guarantees (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1232_19
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