Claimants to Systemically Important Financial Institutions (SIFIs) would receive transfers when governments are forced into bailouts. Ex ante, this bailout expectation lowers SIFIs’ daily funding costs. The funding cost advantage reflects both the structural level of the government support and the time-varying market valuation for such a support. Based on a large worldwide sample of banks, we estimate the value of the structural subsidy, by exploiting expectations of state support embedded in credit ratings and by applying the long-run average value of the rating bonus. The value of the structural subsidy was already sizable, 60basis points (bp), as of the end-2007, before the crisis. It increased to 80bp by the end-2009.

We design and conduct a firm-level survey on the use of COVID-19-related government programs, in collaboration with Tokyo Shoko Research, LTD (TSR). Combining the survey results with the financial statements of the respondent firms, we investigate the factors behind the allocation of various government programs. We find that firms that had low credit scores in 2019, before the COVID-19 pandemic, were more likely to apply for and receive the subsidies and concessional loans offered by the Japanese government in 2020, controlling for the sales growth after the onset of the pandemic. Firms with low credit scores are not necessarily zombies, which are defined to be the firms that are non-viable but kept alive by assistance from creditors and/or the government. Our result suggests that the government assistance may have subsidized some poorly performing firms that were not yet zombies before the pandemic.