Government Guarantees and the Valuation of American Banks

Andrew Atkeson, Adrien d'Avernas, Andrea Eisfeldt and Pierre-Olivier Weill
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Adrien d'Avernas: Stockholm School of Economics
Andrea Eisfeldt: University of California, Los Angeles

No 847, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: Banks’ ratio of market equity to book equity was close to one until the 1990s, then more than doubled during the 1996-2007 period, and fell again to values close to one 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 the market to book ratio is the sum of two components: franchise value, and 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: 2018
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Government Guarantees and the Valuation of American Banks (2019)
Chapter: Government Guarantees and the Valuation of American Banks (2018)
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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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:847

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