Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/121313
Authors: 
Käfer, Benjamin
Year of Publication: 
2015
Series/Report no.: 
Joint Discussion Paper Series in Economics 25-2015
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 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.
Subjects: 
too big to fail
implicit guarantee
support rating
systemic risk
Landesbanken
Haftungsverbund
joint liability scheme
institutional protection scheme
deposit insurance
JEL: 
G12
G21
G24
Document Type: 
Working Paper

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