The Private Value of Too-Big-To-Fail Guarantees

44 Pages Posted: 29 May 2013

See all articles by Michiel Bijlsma

Michiel Bijlsma

De Nederlandsche Bank; Tilburg Law and Economics Center (TILEC)

Remco Mocking

CPB Netherlands Bureau of Economic Policy Analysis

Date Written: May 2013

Abstract

We estimate the size of the annual funding advantage for a sample of 151 large European banks over the period 1-1-2008 until 15-6-2012 using rating agencies "assessment of banks" creditworthiness with and without external support. We find that the size of the funding advantage is large and fluctuates substantially over time. For most countries it rises from 0.1% of GDP in the first half of 2008 to more than 1% of GDP mid 2011. Our results are comparable to findings in previous studies. We find that larger banks enjoy on average higher rating uplifts, but the effect of size does not increase anymore for banks with total assets above 1,000 billion Euro compared to banks with assets between 250 and 1,000 billion Euro. In addition, a higher sovereign rating of a bank's home country leads on average to a higher rating uplift for that bank.

Keywords: banking, too-big-to-fail, rating agencies, implicit subsidy, financial crisis

JEL Classification: G01, G21, G24

Suggested Citation

Bijlsma, Michiel and Mocking, Remco, The Private Value of Too-Big-To-Fail Guarantees (May 2013). TILEC Discussion Paper No. 2013-016, Available at SSRN: https://ssrn.com/abstract=2271326 or http://dx.doi.org/10.2139/ssrn.2271326

Michiel Bijlsma (Contact Author)

De Nederlandsche Bank ( email )

Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Remco Mocking

CPB Netherlands Bureau of Economic Policy Analysis ( email )

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

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