Abstract

http://ssrn.com/abstract=2231317
 
 

References (32)



 
 

Citations (1)



 
 

Footnotes (9)



 


 



The Value of Implicit Guarantees


Zoe Tsesmelidakis


University of Oxford - Oxford-Man Institute of Quantitative Finance; University of Oxford - Said Business School

Robert C. Merton


MIT Sloan School of Management; National Bureau of Economic Research (NBER); Harvard Business School - Finance Unit

September 1, 2012


Abstract:     
Firms considered "too big to fail'' (TBTF) benefit from access to cheaper funding during crises. Using a comprehensive data set of bond characteristics and prices in the primary and secondary market for a sample of 74 U.S. financial institutions, we investigate how reduced debt capital costs affect the positions of shareholders and creditors. Issue and transaction prices are revalued on the basis of a funding advantage estimated using a structural model. Our results indicate that wealth transfers to investors sum up to $365bn and that banks shifted to fixed-rate short-term funding to take advantage of their TBTF status.

Number of Pages in PDF File: 46

Keywords: Financial crisis, Systemic risk, Too big to fail, Government guarantees

JEL Classification: G01, G12, G14, G18

working papers series


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Date posted: March 11, 2013  

Suggested Citation

Tsesmelidakis, Zoe and Merton, Robert C., The Value of Implicit Guarantees (September 1, 2012). Available at SSRN: http://ssrn.com/abstract=2231317 or http://dx.doi.org/10.2139/ssrn.2231317

Contact Information

Zoe Tsesmelidakis (Contact Author)
University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )
Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom
University of Oxford - Said Business School ( email )
Park End Street
Oxford, OX1 1HP
Great Britain
Robert C. Merton
MIT Sloan School of Management ( email )
77 Massachusetts Avenue
E62-634
Cambridge, MA 02139-4307
United States
617 715 4866 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6678 (Phone)
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