Risky Bank Guarantees
Makinen, T., Sarno, L. 
ORCID: 0000-0003-1279-9748 & Zinna, G. (2020).
Risky Bank Guarantees.
Journal of Financial Economics, 136(2),
pp. 490-522.
doi: 10.1016/j.jfineco.2019.10.005
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: | Bayes Business School > Finance |
| SWORD Depositor: |
Available under License Creative Commons Attribution Non-commercial No Derivatives.
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