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

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86 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.
4 Impact of state guaranteed bonds on bank lending, funding and profitability performance Table 15: Variables used in the analysis of bank outcomes Policy variables Group Variable(s) Description Source Guaranteed GUARANTEEDit Dummy variable indicating whether bank i participated in the scheme before or in year t. Year of guarantee GUARANTEE YEARit Dummy variable indicating whether bank i participated in the scheme in year t Size of guarantee Banking sector effects GUARANTEE SIZEit The value of state guaranteed bonds issued by bank i in year t. The value is expressed as the proportion of Total Liabilities and Equity at the end of year t. Real GDP GDPjt GDP per capita, standardised using the Purchasing Power Parity. Eurostat Long term interest rate INTEREST RATE (LONG-TERM)jt The interest rate on a 10 year government bond in the bank’s home country. Based on bond issue data from Bloomberg. Based on bond issue data from Bloomberg. Based on bond issue data from Bloomberg. Bloomberg Central bank interest rate INTEREST RATE (SHORT-TERM)jt Eurostat V2X VOLt VSTOXX is a measure of market expectations in the near-term up to longterm volatility. The basis is the volatility of the Euro Stoxx 50 option prices. High VSTOXX implies expectations of high volatility in the market. 1-month Interbank rate, Euribor Bank specific effects Bloomberg INTERBANK RATEjt Bloomberg Fitch rating on long-term debt BANK RATINGit Dummy variable taking the value 1 if bank i was rated “AAA” by Fitch and “0” otherwise Reserves for impaired loans RESERVESit The reserves set aside for impaired (non-performing) loans by bank i in year t, expressed as a proportion of Total Liabilities and Equity. Total earning assets TOTAL ASSETSit Total earning assets including Net Loans, Loans and Advances to Banks, Total Securities, Insurance Assets, Other Earning Assets and Investments in Property. BankScope BankScope BankScope London Economics The impact of state guarantees on banks' debt issuing costs, lending and funding policy 87
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Economic Papers are written by the
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Wherever possible London Economics
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Contents Page Annex 4 Results of di
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Tables, Figures & boxes Page Table
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Glossary vi Glossary BGN Bloomberg
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Executive summary Member States (Cy
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1 Introduction 1 Introduction 1.1
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1 Introduction 1.4 Research questi
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1 Introduction analysis of the lat
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2 Overview of state guarantee sche
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3 Issuing costs of state guarantee
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Page 118 and 119: References Acharya V.V. and Sundara
Page 120 and 121: Lando, D. (1997). 'Modeling Bonds a
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Annex 2 Comparison of SG and non-SG
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Annex 2 Comparison of SG and non-SG
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Annex 3 Analysis of missing issuin
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Annex 3 Analysis of missing issuing
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Annex 3 Analysis of missing issuing
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Annex 4 of diagnostic tests of issu
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Annex 4 of issuing cost model Figur
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Annex 5 -over model Annex 5 Results
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Annex 5 -over model Figure 25: Anal
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Annex 6 Availability of bank data A
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Annex 6 Availability of bank data T
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Annex 7 Linking Bloomberg and Banks
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Annex 8 Investigation of estimation
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