Government Guarantees and the Valuation of American Banks

Andrew Atkeson, Adrien d'Avernas, Andrea Eisfeldt and Pierre-Olivier Weill

No 24706, NBER Working Papers from National Bureau of Economic Research, Inc

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. Sarin and Summers (2016) and Chousakos and Gorton (2017) 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.

JEL-codes: G18 G2 G21 G28 G32 G33 G38 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-ban and nep-cfn
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Published as Government Guarantees and the Valuation of American Banks , Andrew G. Atkeson, Adrien d'Avernas, Andrea L. Eisfeldt, Pierre-Olivier Weill. in NBER Macroeconomics Annual 2018, volume 33 , Eichenbaum and Parker. 2019

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