Huizinga, HarryDemirgüç-Kunt, Asli2012-03-192012-03-192010-07-01https://hdl.handle.net/10986/3844Deteriorating public finances around the world raise doubts about countries' abilities to bail out their largest banks. For an international sample of banks, this paper investigates the impact of government indebtedness and deficits on bank stock prices and credit default swap spreads. Overall, bank stock prices reflect a negative capitalization of government debt and they respond negatively to deficits. The authors present evidence that in 2008 systemically large banks saw a reduction in their market valuation in countries running large fiscal deficits. Furthermore, the change in bank credit default swap spreads in 2008 relative to 2007 reflects countries' deterioration of public deficits. The results of the analysis suggest that some systemically important banks can increase their value by downsizing or splitting up, as they have become too big to save, potentially reversing the trend to ever larger banks. The paper also documents that a smaller proportion of banks are systemically important -- relative to gross domestic product -- in 2008 than in the two previous years, which could reflect private incentives to downsize.CC BY 3.0 IGOACCOUNTINGADVISORY SERVICESASSETS RATIOAVERAGE COSTSBAD CREDITBAILOUTBALANCE SHEETSBANK ASSETBANK ASSETSBANK BONDSBANK COMPETITIONBANK CREDITBANK CREDITORSBANK DEPOSITSBANK FAILUREBANK FAILURESBANK FOR INTERNATIONAL SETTLEMENTSBANK LIABILITIESBANK LIABILITYBANK MARKETBANK MERGERSBANK PROFITABILITYBANK REGULATIONBANK RISKBANK SIZEBANK VALUATIONBANKING CORPORATIONBANKING CRISESBANKING CRISISBANKING INDUSTRYBANKING SECTORBANKING SYSTEMBANKING SYSTEMSBANKRUPTCYBANKRUPTCY PROCEEDINGSBANKSBENCHMARKBENCHMARKSBONDBOND HOLDERSBOND MARKETBOND MARKETSBOND YIELDBONDSBOOK VALUEBORROWINGBORROWING CAPACITYBUDGET BALANCEBUDGET BALANCESBUDGET CONSTRAINTSBUSINESS CYCLECAPITAL ASSETSCAPITAL REGULATIONCAPITAL REQUIREMENTSCAPITALIZATIONCDSCENTRAL BANKSCENTRAL GOVERNMENT DEBTCHECKSCLAIMCOMPETITIVE ADVANTAGESCONTINGENT CLAIMCONTINGENT LIABILITIESCORPORATE YIELDCREDIT DEFAULTCREDIT DEFAULT SWAPCREDIT DEFAULT SWAPSCREDIT DERIVATIVESCREDIT INSTITUTIONSCREDIT LOSSESCREDIT QUALITYCREDIT RATINGCURRENCYDEBENTUREDEBENTURE HOLDERSDEBENTURESDEBTDEBT ISSUESDEBT RATIODEFAULT RISKDEFICITSDEPENDENTDEPOSITDEPOSIT INSTITUTIONDEPOSIT INSURANCEDEPOSIT INSURANCE SCHEMEDEPOSIT LIABILITIESDISTRESSED BANKSDIVIDENDDOMESTIC BANKDUMMY VARIABLEDUMMY VARIABLESEARNING ASSETSEARNINGSECONOMIC CRISISECONOMIC RENTSECONOMIES OF SCALEEMERGING MARKETEMERGING MARKET ECONOMIESEUROPEAN CENTRAL BANKEXPECTED RETURNSEXPLICIT DEPOSIT INSURANCEEXTERNALITIESFINANCIAL CRISISFINANCIAL INSTITUTIONSFINANCIAL SAFETYFINANCIAL SAFETY NETSFINANCIAL SECTORFINANCIAL STUDIESFINANCIAL SUPPORTFISCAL AUTHORITIESFISCAL BALANCEFISCAL BALANCESFISCAL DEFICITSFOREIGN BANKFUTURE FINANCIAL CRISISGDPGDP PER CAPITAGOVERNMENT DEBTGOVERNMENT DEFICITSGOVERNMENT FINANCEGOVERNMENT FINANCESGOVERNMENT INDEBTEDNESSGOVERNMENT REVENUESGROSS DOMESTIC PRODUCTHIGH DEBTHOLDINGSIMPLICIT SUBSIDIESIMPLICIT SUBSIDYINDEBTEDINDEBTED COUNTRIESINDIVIDUAL BANKINDIVIDUAL BANKSINFORMATION ON CREDITINSIDER TRADINGINSOLVENCYINSURED DEPOSITSINTERNATIONAL BANKINTERNATIONAL BANKINGINTERNATIONAL BANKSINVESTMENT BANKSLARGE BANKLARGE BANKSLEADING INDICATORSLEVERAGELIABILITYLIQUIDITYLOSSES ON BANKLOSSES ON BANKSMARKET DISCIPLINEMARKET PRICESMARKET VALUEMATURITYMERGERMONETARY POLICYMORAL HAZARDMORTGAGEMORTGAGE LOANSNATIONAL ECONOMIESNATIONAL ECONOMYNEGATIVE EXTERNALITIESNUMBER OF BANKSPOSITIVE COEFFICIENTPOSITIVE COEFFICIENTSPRICE DISCOVERYPROFITABILITYPUBLIC ASSISTANCEPUBLIC BUDGETPUBLIC DEBTPUBLIC DEBTSPUBLIC FINANCEPUBLIC FINANCESPUT OPTIONREGULATORY FORBEARANCEREGULATORY RESTRICTIONSREORGANIZATIONRETURNRETURN ON ASSETSRETURNSRISK DIVERSIFICATIONRISK EXPOSURERISK PROFILESAFETY NETSECURITIESSHAREHOLDERSHAREHOLDER VALUESHAREHOLDERSSMALL BANKSMALL BANKSSOLVENCYSTOCK MARKETSTOCK MARKET VOLATILITYSTOCK MARKETSSTOCK PRICESSTOCK RETURNSTOCK RETURNSSUBORDINATED DEBTSUBSIDIARIESSUBSIDIARYSWAP MARKETSYSTEMIC BANKING CRISESTAKEOVERTAXTAXATIONTRADINGUNIONVALUATIONWEALTHWEALTH EFFECTWEALTH EFFECTSWINDING-UPYIELD SPREADSWorld Bank10.1596/1813-9450-5360