Measuring Too-Big-To-Fail Funding Advantages from Small Banks’ CDS Spreads

28 Pages Posted: 26 Mar 2014

See all articles by Michiel Bijlsma

Michiel Bijlsma

University of Amsterdam - SEO Economic Research; Tilburg Law and Economics Center (TILEC)

Jasper Lukkezen

CPB Netherlands Bureau of Economic Policy Analysis; Utrecht University

Kristina Marinova

CPB Netherlands Bureau of Economic Policy Analysis

Date Written: March 2014

Abstract

Large banks derive a funding advantage from being too-big-to-fail, while small banks do not. To estimate the funding advantage we explain the CDS spreads of small banks in six major European countries during the crisis by market fundamentals and bank-specific characteristics. Next, we extrapolate and predict the CDS spreads of large banks. The difference between the predicted and the observed spread is then interpreted as the funding advantage and amounts to 67 basis points for large banks and 121 for GSIFIs.

Keywords: Too big to fail, credit default swaps, bank funding, costs of crisis

JEL Classification: G01, G21, G24, G28, H12

Suggested Citation

Bijlsma, Michiel and Lukkezen, Jasper and Marinova, Kristina, Measuring Too-Big-To-Fail Funding Advantages from Small Banks’ CDS Spreads (March 2014). TILEC Discussion Paper No. 2014-012, Available at SSRN: https://ssrn.com/abstract=2414405 or http://dx.doi.org/10.2139/ssrn.2414405

Michiel Bijlsma (Contact Author)

University of Amsterdam - SEO Economic Research ( email )

Roetersstraat 29
Amsterdam, 1018 WB
Netherlands

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Jasper Lukkezen

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Utrecht University ( email )

Vredenburg 138
Utrecht, 3511 BG
Netherlands

Kristina Marinova

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
140
Abstract Views
1,603
Rank
372,989
PlumX Metrics