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The drivers of European banks’ US dollar debt issuance: opportunistic funding in times of crisis?

Author

Listed:
  • Luna Azahara Romo González

    () (Banco de España)

Abstract

This paper provides a comprehensive investigation of the determinants of US dollar-denominated long-term debt issuance by European banks. The database used allows the drivers of foreign-currency issuance identified in the literature, including variables at the individual firm (e.g. bank) level, to be explored. The analysis covers overall US dollar issuance as well as Yankee debt issuance, which is defined in this paper as bonds denominated in US dollars issued in domestic US markets by non-US issuers. In addition, issuance determinants are investigated during both crisis and non-crisis periods. The main findings are the following. European banks issue US dollar debt to naturally hedge their US dollar assets (with US dollar exposures obtained from BIS international banking statistics), but they also make extensive use of deviations in covered interest parity and even in uncovered interest parity, particularly after the crisis. There is also evidence that banks issue in US dollars for strategic reasons and that heightened volatility has a negative impact on US dollar issuance. Bank-specific variables are also relevant drivers of US dollar debt issuance: banks with higher asset growth, with a banking subsidiary in the United States and with a high credit rating are more likely to issue in US dollars than others. Bank-specific structures, as captured by deposit and loan ratios, also have a relevant impact on US dollar funding activity in some cases. The results are robust to alternative econometric specifications and to different definitions of covered and uncovered cost savings.

Suggested Citation

  • Luna Azahara Romo González, 2016. "The drivers of European banks’ US dollar debt issuance: opportunistic funding in times of crisis?," Working Papers 1611, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1611
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/16/Fich/dt1611e.pdf
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    References listed on IDEAS

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    Keywords

    bank funding; foreign currency debt issuance; US dollar-denominated debt; interest rate parity; banking crisis; Europe.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F3 - International Economics - - International Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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