Government Guarantees and the Valuation of American Banks

84 Pages Posted: 18 Jun 2018 Last revised: 5 Jul 2023

See all articles by Andrew Atkeson

Andrew Atkeson

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Adrien d'Avernas

Swedish House of Finance

Andrea L. Eisfeldt

UCLA Anderson School of Management

Pierre-Olivier Weill

University of California, Los Angeles; National Bureau of Economic Research (NBER)

Date Written: June 2018

Abstract

Banks' ratio of the market value to book value of their equity was close to 1 until the 1990s, then more than doubled during the 1996-2007 period, and fell again to values close to 1 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 banks' market-to-book ratio is the sum of two components: franchise value and the value of 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.

Suggested Citation

Atkeson, Andrew G. and d'Avernas, Adrien and Eisfeldt, Andrea L. and Weill, Pierre-Olivier, Government Guarantees and the Valuation of American Banks (June 2018). NBER Working Paper No. w24706, Available at SSRN: https://ssrn.com/abstract=3198008

Andrew G. Atkeson (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Adrien D'Avernas

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Andrea L. Eisfeldt

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://https://sites.google.com/site/andrealeisfeldt/

Pierre-Olivier Weill

University of California, Los Angeles ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

Paper statistics

Downloads
47
Abstract Views
491
PlumX Metrics