TY - JOUR AU - Atkeson, Andrew G AU - d'Avernas, Adrien AU - Eisfeldt, Andrea L AU - Weill, Pierre-Olivier TI - Government Guarantees and the Valuation of American Banks JF - National Bureau of Economic Research Working Paper Series VL - No. 24706 PY - 2018 Y2 - June 2018 DO - 10.3386/w24706 UR - http://www.nber.org/papers/w24706 L1 - http://www.nber.org/papers/w24706.pdf N1 - Author contact info: Andrew Atkeson Bunche Hall 9381 Department of Economics UCLA Box 951477 Los Angeles, CA 90095-1477 Tel: 866/312-9770 Fax: 310/825-9528 E-Mail: andy@atkeson.net Adrien d'Avernas Swedish House of Finance, Drottninggatan 98 4th Floor Portkod 8792 111 60 Stockholm, ---- E-Mail: adrien.davernas@gmail.com Andrea L. Eisfeldt UCLA Anderson School of Management 110 Westwood Plaza Suite C4.10 Los Angeles, CA 90095 E-Mail: andrea.eisfeldt@anderson.ucla.edu Pierre-Olivier Weill Department of Economics University of California, Los Angeles Bunche Hall 8283 Los Angeles, CA 90095 Tel: 310/794-6495 Fax: 310/825-9528 E-Mail: poweill@econ.ucla.edu M1 - published as Andrew G. Atkeson, Adrien d'Avernas, Andrea L. Eisfeldt, Pierre-Olivier Weill. "Government Guarantees and the Valuation of American Banks," in Martin Eichenbaum and Jonathan A. Parker, editors, "NBER Macroeconomics Annual 2018, volume 33" University of Chicago Press (2019) M3 - presented at "33rd Annual Conference on Macroeconomics", April 12-13, 2018 AB - 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 profitability. 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. ER -