Government Guarantees and the Valuation of American Banks

84 Pages Posted: 18 Jun 2018

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.

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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

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