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

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4 Impact of state guaranteed bonds on bank lending, funding and profitability performance
INTEREST RATE (SHORT-TERM)jt is the interest rate set by the central bank in country j in year t. It is used an
indicator of the costs to banks of central bank funds.
INTERBANK RATEjt is the rate affecting the cost of funds for banks and in turn their supply of
credit. The chosen interbank rate is the 1-month EURIBOR.
Bank specific variables
BANK RATINGit is the rating assigned by Fitch Ratings to bank i in year t. The rating reflects the
bank’s perceived ability to make timely payments on loan obligations. The variable is a dummy
variable taking the value 1 if bank i is assigned “AAA”-grade in year t and “0” otherwise. A rating of
“AAA” is assigned to banks whose capacity for timely payments is adjudged to be extremely high.
RESERVESit is the ratio of reserves for impaired loans held by bank i to bank i’s total liabilities and
equity.
TOTAL ASSETSit is the total value of earning assets owned by bank i in year t. The variable is the
sum of loans, securities, insurance assets, other assets and property.