Quantifying Structural Subsidy Values for Systemically Important Financial Institutions

Kenichi Ueda and Beatrice Weder di Mauro

No 2012/128, IMF Working Papers from International Monetary Fund

Abstract: Claimants to SIFIs receive transfers when governments are forced into bailouts. Ex ante, the bailout expectation lowers daily funding costs. This funding cost differential reflects both the structural level of the government support and the time-varying market valuation for such a support. With large worldwide sample of banks, we estimate the structural subsidy values by exploiting expectations of state support embedded in credit ratings and by using long-run average value of rating bonus. It was already sizable, 60 basis points, as of the end-2007, before the crisis. It increased to 80 basis points by the end-2009.

Keywords: WP; government support; government; support rating; Systemically important financial institutions; bank funding subsidy; bank bailout; rescue program; cost advantage; support component; support increase; Credit ratings; Bonuses; Financial statements; Europe (search for similar items in EconPapers)
Pages: 28
Date: 2012-05-01
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Citations: View citations in EconPapers (28)

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Journal Article: Quantifying structural subsidy values for systemically important financial institutions (2013)
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