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Government Guarantees and the Valuation of American Banks

Andrew G. Atkeson, Adrien d'Avernas, Andrea L. Eisfeldt, Pierre-Olivier Weill

Chapter in NBER book NBER Macroeconomics Annual 2018, volume 33 (2019), Martin Eichenbaum and Jonathan A. Parker, editors (p. 81 - 145)
Conference held April 12-13, 2018
Published in June 2019 by University of Chicago Press
© 2019 by the National Bureau of Economic Research
in NBER Book Series NBER Macroeconomics Annual

Banks' ratio of the market value to book value of their equity was close to 1 until the 1990s, then more than doubled during the 1996-2007 period, and fell again to values close to 1 after the 2008 financial crisis. Sarin and Summers (2016) and Chousakos and Gorton (2017) argue that the drop in banks' market-to-book ratio since the crisis is due to a loss in bank franchise value or profi tability. In this paper we argue that banks' market-to-book ratio is the sum of two components: franchise value and the value of government guarantees. We empirically decompose the ratio between these two components and find that a large portion of the variation in this ratio over time is due to changes in the value of government guarantees.

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Document Object Identifier (DOI): https://doi.org/10.1086/700893

This chapter first appeared as NBER working paper w24706, Government Guarantees and the Valuation of American Banks, Andrew G. Atkeson, Adrien d'Avernas, Andrea L. Eisfeldt, Pierre-Olivier Weill
Commentary on this chapter:
  Comment, Juliane Begenau
  Comment, Lawrence H. Summers
  Discussion,
 
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