Year: 2016
Author: Käfer, Benjamin
Applied Economics Quarterly, Vol. 62 (2016), Iss. 3 : pp. 231–265
Abstract
This paper estimates the funding advantage afforded by the joint liability scheme to German Landesbanken. The advantage is estimated by computing the difference between Moody’s baseline credit assessment (BCA), representing the stand-alone rating, and the adjusted BCA incorporating group support assumptions. This notch advantage is then multiplied by the average time-varying yield spreads between the respective notches and the rating-dependent liabilities. Our methodology estimates the funding advantage that remains when governmental support for banks formerly considered ‘Too Big to Fail’ (TBTF) is substantially reduced or even abolished. We find a substantial monetary funding advantage due to group support assumptions, amounting on average to a multiple of the Landesbanken’s aggregated annual profits. The aggregated observations mask a distinct heterogeneity, with some of the banks being significantly more exposed to the funding advantage than others.
JEL Classification: G12, G21, G24
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Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/10.3790/aeq.62.3.231
Applied Economics Quarterly, Vol. 62 (2016), Iss. 3 : pp. 231–265
Published online: 2016-09
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 35