Bank credit ratings: The value of government guarantees

We test the value of the government guarantee for banks, using a sample of 1037 OECD banks, for the ten year period leading to the global financial crisis of 2007. Specifically, we test whether the value of the government guarantee –implicit or explicit– depends upon the ability or the willingness of governments to support their banks in case of need. The ability is presumed low for governments with a low credit rating; likewise for the willingness of governments with a high rating. Our preliminary results are consistent with this expectation.