Quantifying Structural Subsidy Values for Systemically Important Financial Institutions

Author/Editor:

Kenichi Ueda ; Beatrice Weder di Mauro

Publication Date:

May 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2012/128

Subject:

Banking Bonuses Credit ratings Financial crises Financial institutions Financial statements Labor Money Public financial management (PFM) Systemically important financial institutions

English

Publication Date:

May 1, 2012

ISBN/ISSN:

9781475503654/1018-5941

Stock No:

WPIEA2012128

Pages:

28

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