Quantifying Structural Subsidy Values for Systemically Important Financial Institutions

By Kenichi Ueda, Beatrice Weder di Mauro

May 1, 2012

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Kenichi Ueda, and Beatrice Weder di Mauro. Quantifying Structural Subsidy Values for Systemically Important Financial Institutions, (USA: International Monetary Fund, 2012) accessed November 21, 2024

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.

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

Keywords: Bank bailout, Bank funding subsidy, Bonuses, Cost advantage, Credit ratings, Europe, Financial statements, Government, Government support, Rescue program, Support component, Support increase, Support rating, Systemically important financial institutions, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/128
Stock No:

WPIEA2012128
ISBN:

9781475503654
ISSN:

1018-5941

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