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

4 Impact of state guaranteed bonds on bank lending, funding and profitability performance
Table 18: Difference in profit performance between banks having issued guaranteed bonds and
banks having issued eligible bonds without guarantee
Balance
sheet item
Pre-issue
year
Net interest income / total
liabilities + equity (% change)
Operating income / total liabilities
+ equity (% change)
Source: London Economics
Posts- issue
year
Number
of
banks
Banks having issued
guaranteed bonds
Mean of
% change
Standard
deviation
of %
change
Banks having issued eligible
bonds without guarantee
Number
of banks
Mean of
% change
Standard
deviation
of %
change
2007 2009 1 -30.9% - 63 12.5% 30.5
2007 2010 6 -3.6% 34.4 58 12.4% 30.1
2008 2009 6 2.3% 29.8 65 10.6% 25.1
2008 2010 26 -11.2% 25.2 58 9.8% 26.0
2009 2010 2 -6.5% 4.9 59 0.8% 19.1
2007 2009 1 -11.6 - 62 1.9% 25.5
2007 2010 6 -1.4 22.1 58 9.8% 26.0
2008 2009 5 5.0% 17.6 57 12.7% 27.6
2008 2010 24 -1.4% 30.7 51 13.6% 26.9
2009 2010 2 -1.1% 4.5 58 -0.9% 17.3
4.4 Econometric analysis of the impact of the issue of guaranteed bonds
on banks’ performance
4.4.1 Empirical research strategy
The empirical research strategy adopted for the assessment of the impact of state guaranteed
bonds on bank outcomes is the counterfactual approach whereby the performance of a relevant
control group of banks that did not participate in state guarantee schemes or receive ad hoc
guarantees ('non-participating' banks) is compared to the performance of banks that did not
participate in state guarantee schemes or received ad hoc guarantees ('participating' banks).
The bank sample used in the analysis consists of participating and non-participating banks that
issued bonds that were, or would have been eligible to be, state guaranteed. That is, bank selection
is based on the issuers behind the SG and non-SG bonds considered in Section 2.
The average impact of a state guarantee on bank outcomes is estimated by taking the differencein-differences
of bank outcomes of participating and non-participating banks, controlling for other
determinants of bank outcomes that are observed and can be measured.
Estimating the difference-in-differences involves several steps. Below, we provide an illustration
based on 2 banks only, a participating bank and a non-participating bank.
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