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

4 Impact of state guaranteed bonds on bank lending, funding and profitability performance
4.5 Summary of key findings
The impact on bank lending, funding and profitability of the provision of state guarantees to bond
issues by banks varies.
A simple, descriptive analysis of the impact of the guarantees provided in 2009 shows that in the
following year (i.e., 2010),
banks having issued guaranteed bonds increased their net loan book by less than banks
having issued noon-guaranteed bonds that would have been eligible;
however, these banks increased their short-term and long-term funding by more than
banks having issued non-guaranteed bonds and their equity capital by less;
moreover, the banks having issued guaranteed bonds show a worse post-issue profit
performance (measured either by ratio of net interest income to total liabilities and
equity or operating income to total liabilities and equity).
A more detailed statistical analysis shows that the simple categorisation into banks issuing SG
bonds and banks not having issued SG bonds is often not granular enough to assess the full impact
of the state guarantee schemes on various outcomes at the bank level.
The key results of the econometric analysis of bank performance show that:
banks that issued SG bonds lent less than banks that were eligible to issue SG bonds but
did not so. Thus, it does not appear that the issue of SG bonds created a distortionary
effect and did not result in a competitive advantage for these banks. Furthermore, the
larger the annual volume of SG bond issuance(s) (relative to total liabilities and equity),
the smaller the lending increase relative to eligible banks that did not issue SG bonds
banks that issued SG bonds reduced their leverage ratio relative to eligible banks that did
not so. This effect is more pronounced for banks that issued a larger volume of SG bonds.
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