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Quantifying Structural Subsidy Values for Systemically Important Financial Institutions

Quantifying Structural Subsidy Values for Systemically Important Financial Institutions by International Monetary Fund
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Claimants to SIFIs receive transfers when governments are forced into bailouts. Ex ante, the bailout expectation lowers daily funding costs. This funding cost differential reflects both the structural level of the government support and the time-varying market valuation for such a support. With large worldwide sample of banks, we estimate the structural subsidy values by exploiting expectations of state support embedded in credit ratings and by using long-run average value of rating bonus. It was already sizable, 60 basis points, as of the end-2007, before the crisis. It increased to 80 basis points by the end-2009.
International Monetary Fund; May 2012
28 pages; ISBN 9781475577907
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Title: Quantifying Structural Subsidy Values for Systemically Important Financial Institutions
Author: International Monetary Fund
 
ISBNs
1475577907
9781475503654
9781475525427
9781475577907