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

3 Issuing costs of state guaranteed bonds
The implementation date of state guarantee schemes was similar across Member States, ranging
from September to December 2008. In general, state guarantees to banks were issued within one
or two years of the implementation date of the scheme.
Eligible institutions were predominantly domestic banks or foreign banks that conducted
significant banking activities in the Member State concerned. In some cases, the decision as to
whether a bank was eligible or ineligible was based on a rule. In Spain, for instance, banks had to
account for at least 1/1000th of the domestic credit market. In other cases, eligible institutions
were determined through the use of discretionary criteria. Notably, in Ireland, a fixed list of banks
was eligible to issue SG bonds.
Other criteria, such as the currency of SG bonds, the maximum tenor (or time to maturity at issue)
and guarantee fees tended to be consistent across Member States. All major currencydenominated
bonds (e.g. Euro and US dollar, among others) were eligible. The maximum tenor for
bonds was either three or five years. And, guarantee fees consisted of a fixed and variable
component based on the bank's creditworthiness (generally, in terms of its credit rating, CDS
spread).
Interestingly, the criteria outlined in Table 5 changed over time, with, for instance, certain
Member States expanding the scale of their schemes in proportion to the depth of the economic
crisis. In practical terms, the selection criteria on which the control group of banks and non-SG
bonds were based were therefore adjusted over time to reflect evolving market conditions
3.4 Issuing cost patterns
This section describes the evolution of issuing costs and provides some information on data
patterns that are explored more formally in the following sections.
Figure 9 shows the evolution of issuing costs and issuance volumes of state guaranteed and nonstate
guaranteed bonds over 2009-2010. Issuing costs are represented by the bars while issuance
volumes are represented by the hollow diamond symbols.
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