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The recent trends in long-term bank funding

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  • Andrea Cardillo

    () (Banca d'Italia)

  • Andre Zaghini

    () (Banca d'Italia)

Abstract

We assess the long-term funding conditions for banks in the US, the euro area and the UK and, separately, for the group of global systemically important financial institutions (G-SIFIs), over the period 1997-2011. After the outbreak of the subprime crisis there was a considerable reshuffling of the relative weight of banks’ funding sources, also due to non-conventional monetary policy interventions, government support measures and a significant increase in wholesale funding costs. By looking at 6,400 bank bonds we find that both implicit and explicit guarantees by the sovereign have a substantial role in shaping the wholesale cost of bond issuance with significant differences between AAA-rated and lower-rated countries. However, when a bank CDS exists the role of the government is significantly reduced with the market giving more weight to the soundness and creditworthiness of the issuing institution.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 137.

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Date of creation: Oct 2012
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Handle: RePEc:bdi:opques:qef_137_12

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Keywords: long-term funding; bank balance sheet; financial crisis; G-SIFIs;

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References

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  1. Giuseppe Grande & Aviram Levy & Fabio Panetta & Andrea Zaghini, 2011. "Public Guarantees on Bank Bonds: Effectiveness and Distortions," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2011(2), pages 47-72.
  2. Fabio Panetta & Thomas Faeh & Giuseppe Grande & Corrinne Ho & Michael King & Aviram Levy & Federico M. Signoretti & Marco Taboga & Andrea Zaghini, 2009. "An assessment of financial sector rescue programmes," Questioni di Economia e Finanza (Occasional Papers) 47, Bank of Italy, Economic Research and International Relations Area.
  3. Aviram Levy & Sebastian Schich, 2010. "The Design of Government Guarantees for Bank Bonds: Lessons from the Recent Financial Crisis," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2010(1), pages 35-66.
  4. Gerlach, Stefan & Schulz, Alexander & Wolff, Guntram B., 2010. "Banking and sovereign risk in the euro area," Discussion Paper Series 1: Economic Studies 2010,09, Deutsche Bundesbank, Research Centre.
  5. Stéphanie Marie Stolz & Michael Wedow, 2010. "Extraordinary measures in extraordinary times – Public measures in support of the financial sector in the EU and the United States," Occasional Paper Series 117, European Central Bank.
  6. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  7. Ashoka Mody, 2009. "From Bear Stearns to Anglo Irish: How Eurozone Sovereign Spreads Related to Financial Sector Vulnerability," IMF Working Papers 09/108, International Monetary Fund.
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