3 Issuing costs of state guaranteed bonds - Financial Risk and ...

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Glossary vi Glossary BGN Bloomberg Generic CBBT Composite Bloomberg Bond Trade HRE Hypo Real Estate SG State guaranteed Non-SG Non-state guaranteed TRACE Trade Reporting and Compliance Engine Member State abbreviations BE Belgium BG Bulgaria CZ Czech Republic DK Denmark DE Germany EE Estonia EL Greece ES Spain FR France IE Ireland IT Italy CY Cyprus LV Latvia LT Lithuania LU Luxembourg HU Hungary MT Malta NL Netherlands AT Austria PL Poland PT Portugal RO Romania SI Slovenia SK Slovakia FI Finland SE Sweden UK United Kingdom
Executive summary Executive summary When wholesale financial markets dried up in autumn 2008 and banks faced severe problems in re-financing their debt, state guarantees were one of the first tools used by Member States to support banks. The motivation of the provision of state guarantees was to help solvent but illiquid banks issue debt securities in the maturity spectrum of 1-5 years after the Lehman Brothers collapse, thereby complementing central bank support that focused on the provision of short-term liquidity. The present report examines the impact on financial markets of the Member States’ debt issue guarantee schemes and ad hoc guarantees offered to banks in the wake of the financial crisis of 2008. It investigates: (i) the effectiveness of state guarantees by analysing supported banks' issuance activity on medium-term debt security markets; (ii) development of capital costs; and (iii) whether effects are visible in differences in banks' performance and risk-taking as reflected in balance sheet data between banks using and not-using state guarantees and between banks before and after issuing guaranteed debt. Overall, the empirical results suggest that guarantee schemes were successful in lowering the costs of bond issues of participating banks while having relatively little distortionary impacts on non-participating banks. Moreover, cross-border spill-overs appear to be non-existent. Therefore, the design of schemes can be said to have been relevant, appropriate and well targeted. Access, however, may have been overly generous in the sense that some issuance of state guaranteed bonds continued through 2010, a period during which financial market conditions had stabilised to some degree. Overview of state guarantee schemes The study focuses on the period 25 October 2008 to 31 December 2010. The starting period is the date of the Communication of the European Commission, The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis Between October 2008 and December 2010 close to 1,000 state-guaranteed bond issues were brought to market with a face value of more than €700billion. Almost 50% of the issuances in number and more than 50% in volume took place in the 11 month period of November 2008 to July 2009. The overall volume of guarantees granted over the period October 2008 – December 2010 varies markedly across Member States, ranging from €164 billion in the UK to €0 in 8 Member States (Bulgaria, Czech Republic, Estonia, Italy, Lithuania, Malta, Romania, and Slovakia). Overall, 5 Member States (Denmark, France, Germany, Ireland and United Kingdom) account for almost 80% of the total volume of state guarantees granted during the period. When taking account of the different sizes of the economies of the Member States, the overall volume of guarantees granted exceeds 100% of GDP in 2 Member States (Denmark, Ireland), ranges from 50% to 100% in 1 Member State (Belgium), ranges from 25% to 50% of GDP in 5 Member States (Austria, Greece, Netherlands, Sweden, Slovenia) and is less than 25% of GDP in 13 vii
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4 Impact of state guaranteed bonds
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5 Key empirical findings and polic
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References Acharya V.V. and Sundara
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Lando, D. (1997). 'Modeling Bonds a
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Annex 1 Eligibility criteria for st
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Annex 2 Comparison of SG and non-SG
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Annex 2 Comparison of SG and non-SG
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Annex 3 Analysis of missing issuin
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Annex 3 Analysis of missing issuing
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Annex 3 Analysis of missing issuing
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Annex 4 of diagnostic tests of issu
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Annex 4 of issuing cost model Figur
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Annex 5 -over model Annex 5 Results
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Annex 5 -over model Figure 25: Anal
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Annex 6 Availability of bank data A
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Annex 6 Availability of bank data T
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Annex 7 Linking Bloomberg and Banks
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Annex 8 Investigation of estimation
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