BoE paper investigates banks’ implicit subsidies
A Bank of England paper published today (May 28), revealed estimates of implicit subsidies for UK banks that range from £30 billion ($47 billion) to £120 billion. The subsidy arises from the implicit guarantee of a government bailout for struggling banks, which reduces their funding costs.
The authors, Joseph Noss and Rhiannon Sowerbutts, consider three approaches to assessing the subsidy, based on assessments by rating agencies and two "contingent claims" models using options prices and
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