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

4 Impact of state guaranteed bonds on bank lending, funding and profitability performance
4 Impact of state guaranteed bonds on bank lending, funding
and profitability performance
4.1 Introduction
This study also provides evidence regarding the impact of state guarantees on the lending, risktaking
and other behaviours of banks, through an analysis of balance sheet variables.
Previous studies have made some observations about developments in bank outcomes,
particularly relating to lending conditions (e.g. IMF, 2009 and Panetta et al., 2009) and we reflect
on these below.
One aspect of lending conditions evaluated over this period by previous studies was developments
in interest rate spreads. Figure 19, for example, shows interest rate spreads up to 2009 for
different types of loans for the Euro area and the UK, as well as the United States for comparative
purposes.
We see that interest rate spreads rose sharply on all types of consumer and commercial loans in
autumn 2008. In the Euro area and to some extent in the United Kingdom, this trend turned
around at the outset of 2009. However, interest rate spreads were still comparatively large
compared to historical levels.
Figure 19: Interest rate spreads on bank loans, bps
Note: 1 Spread of commercial and industrial loan rates over intended federal funds rate. 2 For fixed rate (floating rate) loans, spreads are
computed over the 10-year swap rate (three-month Euribor rate). 3 Spreads over Bank rate.
Source: Panetta et al. (2009): national data
Another focus of previous studies has been developments in bank lending itself. Figure 20 tells a
story consistent with Figure 19. That is, reflecting high interest rate spreads growth in bank lending
to the private nonfinancial sector decelerated in the Euro area and the UK following the start of
the financial crisis in late 2007. And, by May 2009, the growth rate was close to zero in both.
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