NYU Stern Professor Viral Acharya’s research on government debt was cited recently by Bloomberg News in “No Lehman Moments as Big Banks Deemed to Big to Fail.”
“Buyers of big-bank debt have been counting on government aid for at least 20 years, says Anginer, who’s also a professor at Virginia Polytechnic Institute and State University’s Pamplin College of Business in Falls Church.
He’s researched the issue with Viral Acharya, a finance professor at New York University’s Stern School of Business, and Joseph Warburton, a law and finance professor at Syracuse University. They collected more than 84,000 data points for 567 financial firms going back to 1990.
The researchers looked specifically at the difference between what the banks paid creditors for borrowing money and what investors earned from owning U.S. government debt. They subtracted that number from the same measurement for smaller banks and, taking into account differences in risk unrelated to bank size, determined the value of the implicit government subsidy.
The discount for the top 10 percent of banks from 1990 to 2010 was worth, on average, $20 billion annually. In 2009, as lending dried up and the government aided the big banks, the borrowing discount ballooned to about $100 billion.”
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Professor Acharya is Author of Guaranteed to Fail and teaches in the MSRM program.