City Research Online

Risky Bank Guarantees

Makinen, T., Sarno, L. ORCID: 0000-0003-1279-9748 and Zinna, G. (2019). Risky Bank Guarantees. Journal of Financial Economics,

Abstract

Applying standard portfolio-sort techniques to bank asset returns for 15 countries from 2004 to 2018, we uncover a risk premium associated with implicit government guarantees. This risk premium is intimately tied to sovereign risk, suggesting that guaranteed banks, defined as those of particular importance to the national economy, inherit the risk of the guarantor. Indeed, this premium does not exist in safe-haven countries. We rationalize these findings with a model in which implicit government guarantees are risky in the sense that they provide protection that depends on the aggregate state of the economy.

Publication Type: Article
Additional Information: © Elsevier 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Banks; sovereign risk; risk premium; government guarantee
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/22101
[img] Text - Accepted Version
This document is not freely accessible due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

To request a copy, please use the button below.

Request a copy

Export

Downloads

Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login