State-provided guarantees and competitiveness in the financial sector

• Grant number: 13/04257-6
• Support Opportunities: Scholarships abroad - Research
• Start date: July 31, 2013
• End date: February 27, 2014
• Field of knowledge: Applied Social Sciences - Administration - Business Administration
• Principal Investigator: Rafael Felipe Schiozer
• Grantee: Rafael Felipe Schiozer
• Host Investigator: Franklin Allen
• Host Institution: Escola de Administração de Empresas de São Paulo (EAESP). Fundação Getúlio Vargas (FGV). São Paulo , SP, Brazil
• Institution abroad: University of Pennsylvania, United States

Abstract

During my visit to Wharton, I will be working simultaneously on two studies that have interconnected subjects. There will be synergies between these projects, since great part of the literature is common to them. Both are also well related to my latest research, dealing with financial stability, regulation of banking systems and the effects of financial crises, topics which are in vogue in the financial literature. The first project is a cross-country study on the perception of depositors about implicit state-provided guarantees to large banks (popularly known as too-big-to-fail policy). Two shocks will be used for the empirical identification strategy: i) the global financial crisis of 2008/09 and; ii) the sovereign crisis of countries in the Eurozone. The underlying idea is that, during the first crisis, banks considered too big to fail may have received deposits as they enjoyed an implicit (and sometimes explicit) guarantee from their governments. In the second shock, given the weak fiscal condition of some countries, big banks in these countries would have little chance of being bailed out in case of necessity, unlike banks from countries with a solid fiscal situation. Therefore, my hypothesis is that the foreign subsidiaries of banks with an international presence, but headquartered in countries with a weak fiscal condition (such as Santander) are disadvantaged against large banks from fiscally-sound countries (such as Deutsche Bank and Standard Chartered). The second study investigates the transmission of financial crises to credit, using the global financial crisis of 2008/09 as an exogenous shock. It is in principle a study on the Brazilian financial system, with great possibility of being extended to a cross-country study in emerging markets. (AU)