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

4 Impact of state guaranteed bonds on bank lending, funding and profitability performance
4.2.2 Determinants of bank outcomes
The potential explanatory for the study of the effect of state guarantees on bank outcomes are
sourced from several databases.
In general, these explanatory variables can be placed in three groups which capture policy effects,
banking sector effects, and bank-specific effects, respectively.
The policy effects are captured by variables created using information on bonds issued, as
downloaded from Bloomberg.
The banking sector effects are added to the analysis through variables that are downloaded from
Bloomberg or Eurostat.
And, the bank-specific effects are captured by variables from BankScope.
Policy variables
Using the Bloomberg dataset on bond issues, three variables at the bank-level are generated and
used.
GUARANTEEDit is a dummy variable indicating whether bank i participated in a state guarantee
scheme or received an ad hoc guarantee. GUARANTEEDit is coded as one in the first year in which
an SG bond was issued and thereafter and 0 otherwise. GUARANTEEDit is the main variable of
interest in terms of determining the impact of state guarantees to banks on credit extension.
GUARANTEE YEARit is a dummy variable set to 1 in the first year a bank issued a state guarantee
and 0 otherwise. This variable is included in order to isolate values of bank outcomes in the year of
participation in a state guarantee scheme from pre- and post- values captured through
GUARANTEEDit.
GUARANTEE SIZEit is the ratio of the value of bonds issued under state guarantee by bank i in year
t to Total Liabilities and Equity in year t. The value of guarantees is scaled in order to ensure
comparable values across banks.
Banking sector variables
VOLt is the volatility of the EURO STOXX 50 option prices, known as VSTOXX Index. It is used as a
measure of market expectations of near-term up to long-term volatility. High values are associated
with lower credit extension.
GDPjt is the real gross domestic product per capita in country j in year t from the Eurostat
database. Real GDP is a driver of demand for loans. Therefore, changes in real GDP are associated
with changes in credit extension, ceteris paribus.
INTEREST RATE (LONG-TERM)jt is the interest rate on 10-year government bonds issued by country
j in year t. The long-term interest rate is used as a proxy for the interest rate which drives the
demand for loans.
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