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

1 Introduction
1.4 Research questions
The abovementioned study objectives are addressed by providing empirical results on issuing costs
and bank outcomes as follows.
Issuing costs
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Differences in issuing costs between banks making use of state guarantees and those not
making use of them when controlling for rating and possibly other bank-specific and
issuance-specific variables
The significance of spill-over from the issuance of state guaranteed bonds to the issuance
costs of banks that tapped capital markets without relying on state guarantees
The existence of competitive advantages and disadvantages visible in issuing costs arising
from differences in the rating of the sovereign
Bank outcomes
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
Differences in the provision of credit to the economy between banks using and not-using
state guarantees
The extent state guarantees significantly improved banks' access to medium-term debt
markets
1.5 Previous studies
In general, researchers face two key challenges in evaluating the impact of state guarantees such
as the schemes covered by the present study. Firstly, there may be lags between participation in
state guarantee schemes and impacts. Therefore, the full effect of state guarantees may not yet
have fully materialised, especially at the time at which previous studies were conducted. Secondly,
it is problematic to discern long-term impacts from the influence of other events and market
developments in general the greater the time elapsed between intervention and evaluation.
An additional problem relates to the reliance on outcome variables as a means of assessing the
impact of state guarantees on bank behaviours. As supply side interventions, our interest in state
guarantee schemes is their influence on bank decision-making (e.g. to lend). But, our reliance on
outcome variables does not allow us to differentiate between supply side and demand side
effects. If state guarantees were correlated with an increase in bank lending, it may be that banks
used greater access to wholesale funding through state guarantees to lend more. However, it may
have been that increased demand for loans was the underlying cause of an increase in bank
lending. Conversely, state guarantees may have improved banks' lending capacity but limited
demand for loans resulted in little change in the level of credit extended.